Professional Indemnity – When advice goes wrong!
Professional Indemnity insurance will cover expenses incurred in your defence if you are alleged to provide inadequate advice, services, design or specification resulting in your client losing money.
Who requires Professional Indemnity Insurance?
Historically various professions have required this insurance to meet their body’s regulatory requirements.
With increasing litigation, even if you are not obliged to have this insurance, without it you could be found liable for legal costs and compensation payments should your customer feel you have provided inadequate advice.
Claims can be time consuming and can result in lost revenue to the business so we would recommend companies to have Professional Indemnity insurance if:
- You are providing a professional service and advice to your customers eg consulting or contracting / specification.
- Your work as a consultant or contractor requires you to have Professional Indemnity insurance to undertake a contract.
- You provide design / specification and feasibility studies to your clients. This is not limited to architects but includes engineers, IT professionals and companies across a variety of sectors.
- You wish to protect yourself against allegations of wrongful advice for work you have undertaken for a client.
- Your industry Association / Regulatory Body requires you have Professional Indemnity.
What Does “Claims Made” Mean?
Professional Indemnity insurance is a “claims made” policy and provides cover for claims which are made and notified to insurers during the policy period.
In contrast to this, other insurances are on a “claims occurring” basis which provides cover for claims during that policy period.
If a Professional Indemnity insurance policy is therefore not renewed or cancelled, this would end coverage and the policyholder would not be covered should an allegation of wrongful advice have occurred during the policy period. It is important to continue Professional Indemnity insurance cover beyond the end of a contract for a suitable period in case an incident comes to light.
Similarly if the business ceases trading, “run-off” cover is strongly recommended to continue to provide Professional Indemnity cover for a period of time to fund any defence of a claim that could arise.
No matter how careful you are and confident of your own abilities or service, any company could be faced with a claim for alleged wrongful work:
- A business consultant could accidentally reveal sensitive information about a client in an email to the wrong person
- An IT consultant who wrongfully specifies the computer system.
- A Printer realises there is a spelling mistake when brochures are printed for a client. A Professional Indemnity policy would cover the reprinting costs.
- Unintentionally producing material that infringes the Intellectual Property Rights for example, on-line images without the owners permission can lead to legal costs and compensation.