Chances are if you’re reading this that someone has asked or told you that you need to buy a Professional Indemnity policy.
No doubt you’ve heard the term, but as with all insurance products, there is a simple explanation hidden beneath the jargon, let's see if we can simplify things so that you can get a handle on the fundamental basics.
What is Professional Indemnity Insurance?
Even the term itself creates confusion, in the US they call in Errors and Omissions (E&O) Insurance, or it can be referred to as PII Insurance, or PI Insurance, Professional Liability Insurance, Indemnity Insurance – we’re sure there’s more too. Still, the roads all lead to the same place!
Firstly, let’s deal with the technical explanation:
Professional Indemnity Insurance provides cover for legal costs and expenses if you (or someone in your employment) are alleged, in the course of your job (profession), to have provided either inadequate advice or services to a client.
The policy will pay the costs of defending a claim, any compensation due to your client, and/or rectification costs to remedy the error.
OK, that’s all well and good, but what does this mean in practice? Let look at some examples to bring things to life
- Accountant providing tax advice to a client – a client is investigated by Inland Revenue and receives a fine for tax evasion and accuses the accountant of negligence. The Accountants Professional Indemnity insurance policy will indemnify and defend the claim and pick-up any resulting costs.
- A marketing company is designing some magazine advertising for a client – due to a tight deadline they send to copy, and the ad is produced. It is then spotted that a digit is wrong in the clients’ telephone number. Client alleges that this has cost them a significant business opportunity as well as reputational damage and sues the Marketing Company for lost revenue.
- An architect designs a set of plans for a house re-build for a local property letting company – Mid-way through the project the building inspector advises the client that the head-height in the loft extension does not meet regulations and needs to be changed. The resultant impact is a 6-week delay to the build and client alleges that the fault falls at the architects’ feet for lost revenue and additional labour charges.
As a “Professional” or "expert" in your trade, the law deems that you have an increased duty of care to your clients’ as they are paying you for your professional advice or service and as such, they have the right of legal challenge should things go wrong.
Professional Negligence is the core area of Indemnity cover, but what else is covered? Or more appropriately, what else can go wrong?
While some basic policies will only provide Negligence only cover, in practice you should look for a full civil liability wording which should extend to include:
- Libel and Defamation – Particularly relevant in today’s social media or online world. Imagine the impact if one of your employees bad-mouthing a competitor in a tweet or via Facebook?
- Loss of Professional Documents (includes data) – In the digital age, it’s much easier to back-up our data securely, but documents can still be lost. Laptops containing customer data have been left on the train, or a file containing the top-secret designs for a new product is left in a restaurant and fall into the hands of a competitor.
- Breach of copyright – It’s so easy to inadvertently fall foul of copyright law. We’ve seen a growing number of cases where clients have used images that they believed they had a licence for. They later discover in the small print that this did not extend to commercial use. Unfortunately, they only learn this when the owner is looking for compensation.
- Loss of money (or goods) – If some professions you will be responsible for a client’s property. For example, an Estate Agent leaves the keys for a property instruction in a café and the property suffers a theft that afternoon and £25,000 of goods are stolen. This is also a key area for solicitors where they hold money or property in trust.
My company has strong disciplines and processes in place so that mistakes don’t happen – surely I don’t need PI Cover?
It is best practice to have strong governance in any business, but in today's litigious society that won’t stop a client accusing you of making an error. In fact, it’s all too common:
- A mortgage company loses money after the sale of a repossessed property – The surveyor who carried out the valuation survey at the time the original mortgage was arranged is accused of overvaluing the property.
- A new software solution is not providing the 50% savings that a company budgeted for – the IT Consultant advising them in choice of provider is alleged to have misadvised them on the purchase.
- A Management Consultant brought in to review and reinvigorate the sales process of a business receives a legal challenge as the company interpreted the proposal as a guaranteed 25% uplift in sales which their team has not delivered.
These are just some examples whereby an insurer can help their policyholder defend an allegation of negligence.
Defence costs can run into thousands of pounds, not to mention the time a defence takes and the potential reputational damage.
In our other articles, we look in much more detail at the types of cover and what to look out for, as well as how PI cover can help you grow your business.
Much like buying a car, one policy can be very different from another, and it’s essential to understand precisely what you’re buying before you purchase rather than after you receive a claim.
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