Business-owners or professionals can be left vulnerable and in a treacherous financial position if allegations are made against them pertaining to neglectful professional practice. If legal action is taken, compensation costs could be debilitating and one's reputation could be left in tatters, making it challenging to acquire future employment.
Professional Indemnity insurance (PI) is a form of risk-management that protects one's professional and financial situation and reputation should such a scenario arise. Indemnity means compensation, and so a Indemnity policy will cover the beneficiary for repayment costs and legal fees, or at least for a portion of it depending on the agreed extent of the cover.
A professional indemnity insurance is sometimes also called professional liability insurance. It is meant to cover the legal expenses and compensation in case you are sued by a client for a mistake you made when working for him/her. The error could be in the form of professional negligence, loss of crucial data or documents, or the violation of intellectual property or confidence. While it is not a legal requirement for all professionals, there are certain associations that require their members to purchase this policy. Additionally, individuals in certain fields are more prone to faults that could attract legal claims. Such professionals should reduce the associated business risks by acquiring a professional indemnity insurance.
Is Professional Indemnity Insurance Compulsory?
Under the law, businesses don’t have to purchase a professional indemnity insurance. However, some regulators and professional bodies require their members to have it. As such, it is important to go through your client contract as well as the operational guidelines provided by your regulator and professional institutions.
When Do I Need a Professional Indemnity Insurance?
There are various scenarios that warrant the acquisition of this cover. This includes:
- If you offer expert services. It will come in handy in the event of a mistake in calculations, plans, or designs.
- If you are in the business of handling clients’ information. The policy with be helpful of you face a claim resulting from the accidental disclosure of data or infringement of a person’s legal rights.
- If you are in the consultancy business. If there’s a blunder resulting from the advice you’ve offered, the client may claim compensation hence the need for a professional indemnity insurance.
- A client may require you to have this policy before commencing their work.
- If you are part of a professional association where having the cover is mandatory.
What Professions Need a Professional Indemnity Insurance?
The list of professionals who should consider purchasing a profession indemnity insurance is endless. However, some of the experts to whom this policy is crucial include:
- Business consultants
- IT consultants
- Interior designers
- Design and construction professionals
- Town planning officials
- Risk management experts
- Education and training personnel
What Does the Professional Indemnity Insurance Cover?
In general, a professional indemnity policy covers the costs that you may incur in case of a claim from a discontented client. It includes the legal expenses and settlements resulting from a claim of negligence, breach of confidence, misplacement of documents, or violation of a client’s intellectual property rights. For instance, it can cover the compensation to a third party who has sustained bodily injury or property damage. It is important to note that this loss should result from a mistake related to your professional duties. In the case of an injury at the workplace, an employer’s liability insurance and public liability insurance are needed to cater for employees and the public claims respectively.
Process of Making a Professional Indemnity Claim
Notification. The first step to benefiting from your professional indemnity cover is to notify the insurer in case there is a claim leveled against you or a scenario that is likely to trigger such a claim. You can always take to your insurance broker for advise on whether you should notify the insurer about a particular situation.
Pre-action stage. The insurer will request you to present detailed information regarding the situation in order to evaluate the claim comprehensively. You may also be asked to offer your views on whether you are liable as well as an estimated value of the loss claimed by the client. At this point, you are likely to receive a pre-action protocol letter of claim. Ensure that you follow the embedded procedures. However, there is no need to worry since your insurer will guide you throughout the entire process. An expert and lawyer will be appointed by the insurer to be of the process where necessary.
Call for negotiations. It is possible to use a formal form of alternative dispute resolution to solve the arising disputes. The advantage of this approach is that you will reduce the incurred costs while still finding a solution that will suit both parties. Even if you adamant that the claimant’s assertions are unreasonable, it is important to evaluate the risks of going forward with the case in a court of law. Ultimately, the expenses and time it will take to settle the claim in the latter setup may render the whole process irrational.
Litigation stage. If the claim isn’t settled at the pre-action stage or through an alternative dispute resolution approach, the matter will now be subject to litigation. The insurer will select a solicitor who will advise them and you accordingly.
Insurers That Offer Professional Indemnity Insurance in the UK
There are numerous insurers within the UK that offer professional indemnity insurance. It is helpful to evaluate the policies of different companies to determine the cover that suits you best. Some of these insurers include:
Indemnity Insurance Coverage
PI policy coverage ranges from one provider to another, though they generally cover for a range of professional malpractices. These include but are not limited to negligence; confidentiality violation; breach of copyright; loss of data, documents or moneys for which they are responsible and misconduct in a professional capacity.
PI insurance operates slightly differently from other more commonplace insurances like home, travel and car insurance, in that it operates under a 'claims made' rather than the more familiar 'claims occurred' system. This means that when a claim is made, the insurer who is operating at the time of the incident will not necessarily represent the case, instead the insurer covering at the time the claim is made will take on the suit.
Indemnity Insurance Obligatory
Professions that provide advice or a service to paying clients are those for which a PI policy is advisable, and in some cases legally compulsory. For example, solicitors operating in the UK are legally obliged to have a PI policy covering individual cases for at least £2-3 million.
Due to the nature of solicitors and lawyers' work practice – providing extensive and often litigious advice to high-paying clientèle – there is an increased need to protect oneself from dissatisfied customers who have incurred financial loses as a result of following advice given by a qualified lawyer.
Indemnity Insurance Voluntarily
Other professions that are advised, though not legally obligated (in the UK), to take out PI policies include dance instructors and fitness trainers, architects and designers, homeopaths, masseurs, physiotherapists and osteopaths (among other alternative health practitioners) as well as engineer and accountants, to name a few.
It is important to be aware of the fact that legal action can be taken against a business or professional up to 6 years after an incident of contention has arisen and whereby a professional has provided blameworthy advice or unsatisfactory services. This means that a claim could be made against somebody who is ceasing to practice, who has changed careers or employees or after a business has reached cessation.
The way to combat this issue is by ensuring that the insurance policy you chose has what is know as run-off cover. Run-off cover is a safety buffer to ensure that a business-owner or professional remains financially safe and protected if a case is brought against them after their primary PI policy has ended.
There are certain professionals who are more likely to make mistakes when working for a client; an aspect that could result in a legal claim. Having a professional indemnity insurance protects you against the financial loss that you may incur in such scenarios. While it is not mandated by law, certain organisations require all their members to own one.