The need for professional indemnity insurance

December 30, 2009 · Filed Under Professional indemnity insurance · Comments Off 

Professional indemnity insurance (or PII) may be important in helping keep your business going and perhaps in some cases, even helping you avoid financial ruin.

In the case of some professions it may be mandatory and even if not, it may be highly advisable.

The problem

In much of social life, if we make a mistake then usually a simple apology and perhaps some form of minor restitution will usually suffice to smooth things over.

This though, is becoming less and less common as an approach in the professional world. In today’s business society there is a growing inclination towards litigation and blame attribution when things go wrong. In many situations you may find that putting your hands in the air and saying “sorry – we messed up” is no longer sufficient.

Some examples

As a professional, you may find that you can be financially and legally exposed by any number of your normal daily activities including:

  • the provision of advice and guidance to support decision making, should that input subsequently be proven to be incorrect – you may be vulnerable to ‘professional negligence’ claims;
  • the provision of data in the same circumstances that subsequently is shown to be materially inaccurate – once again this could be interpreted as a failure of due professional care;
  • if you have designed or recommended a solution that does not work or does not function as specified;
  • you have published or said something critical relating to a supplier, individual or perhaps even a product – if inaccurate you may find yourself facing legal action for libel, slander or defamation;
  • you or your staff have accidentally released confidential client information or records to unauthorised parties;
  • you or a member of your staff is perceived to have been working with a client and making recommendations or providing services whilst under a conflict of interest;
  • a member of the public has been accidentally injured by you, your staff or your property – this may result in public liability claims.

This is only a sample of the things that may potentially result in you facing legal action and very high damages costs.

The costs

It is impossible to generalise because each situation will be different. Even so, without an appropriate professional indemnity insurance policy, you could be facing awards running into 6 or even 7 figures.

The insurance options

Professional indemnity insurance is not something to be taken lightly. Being under-insured is a real risk but of course you probably won’t want to be paying for insurance cover that you don’t need.

It may be advisable to contact a specialist provider of professional indemnity insurance. They can be found on the Internet and will typically be only too pleased to offer free information and quotations.

Who might need professional indemnity insurance?

November 30, 2009 · Filed Under Professional indemnity insurance · Comments Off 

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.

Professional indemnity insurance – what you need to know

October 30, 2009 · Filed Under Professional indemnity insurance · Comments Off 

Physical risks such as flooding and fire are one thing, and apply to domestic homes as much as businesses. But companies have other issues to consider such as the potential risk of legal action, depending on the nature of their business. Professional indemnity insurance is a form of cover which may pay out for legal costs and as such may be a potential lifesaver in certain circumstances.

Typically this kind of cover pays out for solicitors’ fees and compensation costs if you are taken to court as a business or sole trader. This may happen because the client thinks you have done a poor job, and the cover may apply to pretty much anybody who offers professional advice.

In the past it was mainly associated with the likes of architects, solicitors, and doctors. In some circumstances a trader may need professional indemnity insurance, or PII as it is known, in order to gain membership of professional bodies or to comply with legal requirements.

These days with the emergence of a more legally aware society, professional indemnity cover may be useful for a wider number of firms such as IT contractors, builders, designers, management consultants, and a whole range of other experts.

Provided somebody stays within the policy limit, payouts may be made towards legal costs and compensation right the way through the court system, from initial hearings all the way up to the High Court if the case gets that far. Furthermore, payouts are not dependent on whether or not the claim against you is valid or not. Even if it is found that the claimant’s allegation is correct, you would still get a payout.

Professional indemnity insurance comes in various different levels, and the top payout level on a policy is important. Choose something too low, and you may end up under-insured, forced to pick up the difference if your case overruns in terms of legal and compensation costs.

Choosing something to high may mean that you end up over-insured, paying for a level of protection that you don’t really need.

You may choose to carefully review your turnover, client list, and other factors before deciding on what level of cover to choose as it is important not just in terms of the premium costs.

Professional indemnity insurance limits may be quite flexible depending on the provider, allowing you to specify a level which stays within your budget but which provides adequate protection in the event you do face that unwanted court case.

Taking out a basic professional indemnity insurance plan

September 28, 2009 · Filed Under Professional indemnity insurance · Comment 

Although a consultant or contractor typically does their best to complete jobs in good faith and to the best of their ability, it is almost inevitable that disputes of some form will arise from time to time. Although in many cases arguments can be sorted out amicably, sometimes clients can be minded to take legal action. This is why many professionals decide to have professional indemnity insurance in place as a safety net.

Imagine a management consultant making a series of recommendations which later turn out to actually harm a business rather than help it, or a computer contractor installing a network which crashes and loses a company money. These are brief examples of when the professional’s client may decide to sue.

This will mean defending a case in the courts, and civil actions are notoriously expensive when it comes to hiring a legal defence. Furthermore, if the case is lost there is always also the chance that compensation could be awarded in favour of the complainant.

Professional indemnity insurance, often referred to in business circles as PII, will typically pick up a policyholder’s legal bills in the event they are sued. This means they are effectively protected against massive legal expense in the event of a court case.

This kind of insurance normally protects against claims that the policyholder has committed a mistake, error, or act of negligence in their general day to day business. It can protect an individual contractor or a firm with a number of employees as a whole.

Normally a basic policy will also protect against claims someone has breached confidentiality or copyright accidentally, or even that they have defamed somebody through libel.

While hardly guaranteed, these circumstances are all real risks which can have massive financial implications for a business which does not have professional cover.

Professional indemnity insurance normally features premiums which are based on the size of the maximum payout on a policy, ie the highest amount the insurance company is prepared to pay towards legal costs and compensation in the event of a claim. This can be hundreds of thousands of pounds for smaller businesses or millions for larger firms.

Features of professional indemnity insurance

August 27, 2009 · Filed Under Professional indemnity insurance · Comment 

Getting the right kind of cover and protection is essential for any business, from insurance if there is a break-in and theft of equipment, to protection if the company faces legal action. Professional indemnity insurance is a type of policy taken out by many businesses and individuals who offer their advice on a professional basis. Premiums are often linked to the maximum payout limit, and all types of this insurance cover someone’s legal costs in the event they are accused of making a professional mistake.

Professional indemnity insurance is sometimes simply referred to as PI or PII, and is traditionally popular with those who offer their services on a consultancy or contractual basis. In the past this has often mainly meant the likes of private doctors, architects and graphic designers.

However, the modern business is now more aware of legal issues than ever, and may be more minded to seek legal action if they feel they have lost money because of a mistake in a consultants work or advice. Therefore the dilemma can apply to the likes of management consultants, IT contractors and health and safety advisers – in fact just about anybody who provides their advice on a professional basis.

Indemnity cover is an insurance policy which pays for your legal defence if you face a formal legal challenge that you made a mistake, error, omission or committed an act of negligence in the course of your business.

Defending a case and hiring a solicitor can be costly so many policies have high maximum payout limits, sometimes for millions of pounds, although such high levels won’t be needed by every type of firm. It is usual to find indemnity insurance which protects against other things including claims of defamation, unintentional copyright infringement, and accidental breach of confidentiality.

Professional indemnity insurance typically involves a premium related to the type of business which is being insured, and the types of client and contract it deals with. However, the policy applicant typically also has to decide the maximum payout limit – which would cover legal bills and any compensation order in the event of a claim – so getting this level right is important. But remember provided someone typically stays within the limit they are entitled to the payout however far through the court system their case got – even to the high court if needed.

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