Choosing a management consultants professional indemnity insurance plan
The work of a management consultant can be high-pressured and high-profile. But it can also involve high rewards both financially and professionally. However, the job also carries a degree of risk along with the pressure. As a perceived expert in their field, a consultant is expected to do a job which delivers results, and if a client feels they have fallen below this standard, they can take legal action. This is why many people working in the sector take out management consultants professional indemnity insurance.
Professional indemnity insurance, sometimes referred to by insurers as PII, is a form of cover which typically pays out in the event the policyholder faces legal action. It is different to employers’ liability insurance and public liability insurance, in that it applies in the event the policyholder is sued due to a mistake which has cost a client money.
For example, the client may decide to take legal action because a restructuring programme drawn up by a management consultant has actually lead to the company losing money rather than saving it. This is often referred to in the business as suffering a financial injury and the aim of the client is to recover what they have lost through court action.
This will often mean hiring legal help to defend a case which can be expensive. Management consultants professional indemnity insurance will pick up the cost of the legal defence and even any compensation if it is awarded against the policy holder.
The benefits of this are obvious as in some circumstances legal bills can spiral out of control during a civil court action. Professional indemnity insurance will typically protect the policyholder whether or not the claim against them is valid and will even pay for the cost of compensation. Protection applies right the way through the courts system all the way to the High Court if needed, provided somebody stays within the policy limit.
This limit is set when the policy is taken out by the policyholder and companies which have large client lists and considerable turnovers may want protection for millions of pounds, while smaller companies will not need this.
It is also possible to arrange useful extras on a policy, such as an excess, or protection which will apply to any new legal claims which refer back so far they apply to something which happened before the policy was even purchased, known as ‘retroactive cover’.
Management consultants professional indemnity insurance is therefore seen by many as a crucial safety net and method of protecting against the considerable financial risks of a legal action. Premiums are priced according to the policy limit and can also be affected by the professional’s qualifications and experience, meaning a deal is available for every level of consultant.
Typical extra options for management consultants professional indemnity insurance
Management consultants professional indemnity insurance in its simplest forms pays for the policyholder’s legal costs in the event they are sued for an error committed in their business – but normally it can go much further than that. Depending on the deal it can include various extras and some insurance companies even tie in other forms of cover in with it for an overall package price.
Checking what a deal will actually pay out for is important – normally it is expected to cover legal bills in the event of an accusation of a mistake, omission or act of negligence. This often also includes claims that a consultant has lost or damaged data or documents belonging to a client, or that they have unintentionally defamed someone and therefore face being sued for libel.
Deals frequently protect not only the cost of hiring legal help to defend a case – which in some circumstances can be a massive expense, but also typically cover the cost of compensation should it be awarded against the policyholder who loses a case. The maximum payout limit on a policy is therefore important and is often down to the policyholder’s own judgement. This can be based on the size of the consultancy firm, its clients and the size of the contracts it is asked to undertake – some firms may require higher cover levels, and therefore may pay higher premiums, than others.
Insurers may offer some extras with management consultants professional indemnity insurance including public liability insurance either as an optional extra or as part of the price.
A few other features can be useful too. A common one is what is known as retroactive cover which means the cover will pay out if the policy holder faces a legal challenge in future which relates to something so historical it happened before the insurance was taken out.
For example a management consultant may be hired by a firm in March to provide a series of training sessions to senior staff. The job might be completed and payment processed with the client apparently happy. Then in April the consultant might buy an indemnity insurance deal with retroactive cover and in June get a claim in the post relating to the March assignment which the client says involved advice which actually lost the firm money. Provided the policyholder had no prior notification they were going to face the claim, they may be covered as they would be had the incident itself happened after the policy was purchased.
Management consultants professional indemnity insurance may also offer a run off cover option – this refers to protection which can continue for a period of time even after a consultant has ceased trading, retired or changed jobs. The risk of legal action relating to a past contract does not go away simply because someone has left their position, but remains for a period of time after the event.