Do you need professional indemnity insurance?
Professional indemnity insurance provides protection if a client claims you gave them negligent advice and they lost money as a result.
You might be the best in your field, with skills, knowledge and experience that mean you give the right advice 99% of the time – but no one is perfect. If you’re providing advice as a professional, or offering a service that depends on knowledge, then you could make a mistake. In professional life, mistakes can lead to costly legal claims.
When can someone bring a claim?
Professional indemnity insurance provides cover for claims of professional negligence against you. A claim can be brought if you are suspected of failing to do your job to a suitable standard. This could be by giving incorrect advice, or for an oversight such as missing an important deadline.
For example, if you’re an IT consultant advising on a new system for a company, you might fail to include a function that is essential for the client’s operations. If the client loses custom as a result, you could be pursued to compensate for the lost income.
The legal framework for this type of claim is centred on whether you carried out your role to a standard that could reasonably be expected of a professional. This doesn’t mean that your advice has to lead to the best outcome every time, only that it was reasonable advice for a professional to give.
Is professional indemnity insurance a legal requirement?
For some professions such as law, accountancy and financial advice there is a legal obligation to take out insurance. In other professions it might be practically impossible to operate without insurance, even if it is not legally required. For example, many trade associations stipulate professional indemnity insurance as a requirement of becoming a member.
If there is potential for your business to cause significant financial loss to a client, for example in a transaction involving large sums of money or properties, it makes sense to protect yourself with insurance. For many clients, professional indemnity cover is a key factor in deciding who to reward with their custom. It can make the difference between securing a contract and seeing it go to another organisation.
What do professional indemnity policies cover?
Professional indemnity insurance provides cover for paying compensation when a claim is made against you. It also provides assistance with legal fees, both those you would incur in responding to the claim and the fees the claimant might seek to recover from you.
Claims for professional negligence can generally be brought up to six years from the date of the mistake or ‘breach’. This means you might think an error is behind you and forgotten but receive an unpleasant surprise many years later. In certain circumstances, claims can even be brought after this six-year limit.
What policy options are available?
There are many types of specialist professional indemnity insurance designed to reflect the challenges faced by different trades and professions. These include policies for designers and creatives, accountants, surveyors, IT professionals, management consultants and fitness professionals.
Most insurers also offer optional extras that can be selected if additional protection is required. For example, you might choose to add protection against defamation claims to your policy, or cover for loss of documents, breach of confidentiality or data protection breaches.
Most insurers offer a choice of ‘any one claim’ and ‘aggregate’ policies. Any one-claim policies provide cover for any claim up to an agreed limit within the period of insurance, whereas aggregate policies provide a set amount of cover for all claims combined within the policy period.
For example, if two £100,000 claims are made against your company and you have an ‘any one claim’ limit of £150,000 they would both be paid in full. If you had an aggregate policy the first claim would be paid in full but only £50,000 of the second claim would be covered, as that would be the limit of the policy.
Do you have the right protection?
Would your business survive a claim for professional negligence? Everyone makes mistakes – be sure that yours do not threaten the viability of your organisation.
Why not talk to Stride about professional indemnity insurance today?