Companies and individual professionals who have recently started out may be wondering what they may fall back on if they ever faced a legal case in connection with their work. For example, a client is typically more than entitled to take legal action if they feel you have done a poor job and perhaps lost them money because of a mistake. Such a legal action may need defending, which typically means hiring expensive legal help and possibly paying compensation if it is awarded against you. However, a straightforward professional indemnity insurance policy may protect against this risk.
Typically it covers the policyholder against allegations that they have made a mistake, omission, or acted negligently in their work.
For example an architect may normally be covered on a policy if they provided a set of drawings to a client who put them into practice but later found there was an error which needed correcting, costing thousands of pounds.
A graphic designer may also be covered in the event they produce material which is in some way defamatory and results in a legal case, and a management consultant may get protection on a policy if they provide advice which later turns out to be erroneous and costs a client money.
Typically it also protects against legal claims that you have breached someone’s confidence or copyright, that you have acted dishonestly, or that you have simply lost or damaged data or documents which belong to a client.
It works by paying your legal defence costs, which may run into hundreds of thousands of pounds or more, and compensation costs, if awarded against you, which in some circumstances may save the company from going bankrupt.
Professional indemnity insurance also typically protects the policyholder throughout the duration of a court case, no matter how far it gets through the courts system, provided the cost of the defence and compensation stays within an agreed policy limit, defined when the insurance is bought.
In exchange the policyholder pays a regular premium, which may be linked to their qualifications, type of business, and the clients they deal with, among other conditions.
Professional indemnity insurance may even be tailored to provide what is known as retroactive cover, supplying protection for claims which arrive in future but which date back to something which happened before the cover was even bought. This is provided the policyholder was unaware that a legal action was imminent.
A few sensible safety nets may be useful for businesses, particularly if dealing with high profile management decisions. Management consultants professional indemnity insurance may help to protect a professional adviser against unwanted legal claims – and is normally quite flexible in its policy features and costs.
Professional indemnity cover is compulsory for a number of types of business – financial advisers, accountants, and architects may find it is necessary in order to gain membership of professional groups, or to comply with the law. For other types of consultant it may not be strictly compulsory, but may be more than sensible if a company has little other protection in the event they are faced with a court case.
An insurance policy like this may apply to one freelance individual or to a whole company, and normally pays out cash towards legal defence fees and compensation costs which result from a client complaint that you have made an error, omission, or act of negligence in your work.
To give an example a management consultant might be hired to temporarily run a department in an effort to improve its performance. If their decisions, in the opinion of the client, result in the department actually losing the company money, they may decide to take legal action and recover what they have lost.
In such circumstances a consultancy which does not have protection may normally effectively have to pay for their legal bills and compensation themselves, and some cases may run into hundreds of thousands or millions of pounds.
This of course may bankrupt a good deal of companies, which is why management consultants professional indemnity insurance may be a worthwhile option.
It normally involves a payout limit beyond which the insurance company may not cover any further costs for legal defence or compensation. This limit is important because it may run out in the middle of a particularly lengthy case and leave the policyholder picking up the rest of the bill. This is why top cover limits on many policies stretch to hundreds of thousands or millions of pounds.
Not every consultancy may need the same level of protection, however, and a degree of judgement is needed to asses how much protection is really necessary – a freelance working with medium-sized clients may want a higher level of protection than a large consultancy dealing with international firms with large turnovers, for example.
Besides errors, this form of protection normally also pays out in the event you are sued for defamation, or for other incidents such as if you lose important data or documents belonging to a client. Besides this it may protect against claims that you or your employees have acted dishonestly, and perhaps defrauding a client, for example.
Often extra options may be arranged, such as what is known as runoff protection, providing extra cover for when the company is in between insurers, or for when a consultant is winding down the business.
Crucially, management consultants professional indemnity insurance does not typically require that the claim against you is false in order for a payout to be made. Provided any mistake is unintentional, and not malicious, it may well be covered by the protection even if the claimant’s allegation is entirely true.
Many high level consultants may already have protection in place for their premises or their equipment. They may also have a fair amount of training and experience behind them, but still be without insurance which covers the legal risks which may threaten their business. Management consultants insurance is available at levels tailored to the individual needs of a freelance or company as a whole, and may provide a valuable lifeline in the event the policyholder is sued.
There are virtually no restrictions on who may launch a legal action through the civil courts in the United Kingdom. Therefore a client of yours is more than entitled to launch their own case if they feel you have done a poor job.
For example, they may decided to sue you if you make a costly error in your advice, or in training you give to their employees. if you issue a training programme, or make recommendations which later turn out to have lost a company money rather than helped it to increase profit, they may take legal advice and decide to sue.
This may sound rare and it is by no means guaranteed to happen to every management consultant, but if it does happen it may be very damaging to a firm which has limited cash reserves and no indemnity protection in place.
Defending a case normally involves hiring legal help, and if you lose the case compensation may be awarded against you in favour of the claimant. These costs may run into hundreds of thousands or even millions of pounds, and management consultants insurance with indemnity protection is designed to pick up the bill for you.
In exchange for a regular premium the insurance company may cover your legal costs and compensation bill up to an agreed limit in the event you are sued following a mistake, error or act of negligence.
There may be an excess involved, and the premium cost depends typically on the level of protection you require, plus other factors, but in the event of a lengthy legal case, the management consultants insurance cover may save some businesses from going under.
Many professionals and companies may never have even considered what professional indemnity insurance means, while others may have heard of it but never bothered looking into the subject. But it is typically available through conventional IT contractors insurance packages, and in some circumstances may save a business or individual hundreds of thousands of pounds or more.
Professional indemnity insurance may provide cover as part of a general IT contractors insurance deal, and in some circumstances might be referred to as business insurance, or, as part of a business insurance package.
Normally it may protect against claims for loss or damage by a third party or a client and relates to mistakes, real or perceived, made by you in the conduct of your business.
The deal may sometimes apply to one individual person, ie one freelance IT professional, or a company as a whole.
Often a deal may protect against legal claims that you have made a mistake, committed an act of negligence, or a general error in your work. For example, you may incorrectly install a software system which needs to be redone, costing a client money. In such circumstances they may decide to take legal action to recover any money they have lost.
In the past professional indemnity insurance used to be mainly associated with the likes of architects, doctors, and accountants. This was because some of them need to have it in place in order to qualify for membership of trade associations, or to abide by the law.
But it has become popular with other trades, specifically because of a heightened legal awareness which means clients may be more likely to sue if they feel they have been wronged.
IT contractors insurance comes with a policy payout limit, beyond which it may not pay for any more legal fees or compensation costs. Often selecting this limit is important, as if it is too low you may end up under-insured in the middle of a court case and have to pick up the rest of the bill yourself. On the other hand, if you end up over insured, you may be paying for a level of IT insurance protection you don’t really need.
IT consultants may carry with them a significant amount of technological equipment, including laptops, handheld devices, and other gear. Hopefully they will have insured these for accidental damage, but there are other cover considerations to consider too. For example, an IT consultants insurance plan may include an element of professional indemnity protection.
This is a kind of cover which may be considered by any business which provides professional advice. For example, in the past it has been associated with more traditional trades such as accountancy and the medical profession. This is because sometimes these experts need a level of professional indemnity in order to qualify for membership of certain associations.
But professional indemnity has recently become more popular with other kinds of business. This is because of a heightened level of legal awareness in business and in society in general, which may increase the chances of being sued if something goes wrong.
Professional indemnity typically protects you or your business in the event you are taken to court following a mistake.
Typically you are entitled to pay outs in the event you face action for an act of negligence, error, or mistake in your general business.
The payouts are designed to cover defence fees run up by solicitors, plus compensation costs if they are awarded in favour of the applicant.
This is significant because the cost of hiring a legal team to defend a legal case may be astronomical. As such the payout limits on these types of IT consultants insurance plans may be hundreds of thousands of pounds or more. You may need to decide the level which is right for your business. For example, a very large company with international clients and a turnover of millions of pounds may want a level of protection which is higher than a lone freelance with a limited client list.
One of the benefits of this type of cover is that it does not normally require that the claim against you is invalid for the payouts to be made. Even if you have made a genuine mistake or acted negligently, typically payouts are still made.
One of the common conditions on a policy like this is that mistakes or errors that you make are not intentional, i.e. are committed without malice and are not deliberate.
Cover like this may also be altered to include protection for when you are in between insurers or winding down a business, often referred to as ‘runoff cover’.
You may even get protection against claims which arrive in the future but which date back to something which happened in the past, possibly before you even took out the indemnity insurance.
IT consultants insurance typically involves a regular premium – often related to the maximum level of payout on the policy and possibly also connected to the qualifications and experience of your or any of your employees if this applies.