Professional indemnity insurance may save you from financial worries
Imagine this, your business has at last taken off and you are enjoying some success after many years’ of hard work. Now imagine that one day you make a slight mistake and a client sues you for the negative impact it has had upon his or her business. Without any type of professional indemnity insurance where might you get a large sum of money to pay for your legal and other costs? A small mistake on your part may end up draining your business of funds.
In some lines of work professional indemnity insurance may actually be compulsory. This might typically be the case for anyone working as an advisor, consultant or as an accountant in particular professions.
Many other types of business may benefit from taking out this form of insurance, even if it is not compulsory.
For example, some local councils may only work with companies who can show proof of insurance.
Events that may be typically covered in a policy
While every insurance provider differs in what they offer in their insurance policy you may find that a policy covers all or some of the following: slander and libel claims, professional neglect, copyright breach, confidentiality breach, making a statement that may be considered to be negligent or performing an action that is considered negligent on your part.
Go over the fine print
Just as it is important for you to ensure that any contracts you hand out to clients or literature detailing the work you intend to do are set out properly, the same goes for your insurance policy. Insurance policies may differ slightly in the cost of the premiums between providers, and they may also differ when it comes to the fine print. There are nearly always limitations on the amount you may be able to claim if needed, and exclusions typically apply. Finding out what you are allowed to claim for and what not before you pay for the insurance might save you problems in the event that you ever do need to claim.
Peace of mind
In short, professional indemnity insurance is there to provide peace of mind - if a mistake is made by you in your business that is covered by your PII insurance, typically you are not left to pick up the costs alone.
Thinking about professional Indemnity Insurance
If you do any type of freelance or consultancy work, either on your own or as a member of a small business team, then professional indemnity insurance (PII) may be something that could help provide you with financial protection against being found liable to pay damages to a client.
PII can typically provide cover for a wide number of professional occupations including:
- IT contractors;
- consulting engineers;
- management consultants;
- legal professionals;
- forensic consultants;
- photographers.
Professional indemnity insurance provides financial assistance in the event that a client or ex-client sues you to recover losses that they believe were caused, somehow, by you.
Typically this may be as a result of:
- unintentional intellectual copyright infringement;
- accidental breach of confidentiality;
- defamation;
- libel or slander;
- loss of documents or data;
- errors on your part;
- etc.
If the end result is that your client’s business has suffered financially or from a loss of reputation attributable to you then you may sued.
PII can cover the cost of damages awarded against you as well as legal expenses and fees (limits may apply).
For some professions e.g. legal, PII may be mandatory. Some clients may insist that you have PII even though it may not be a legal requirement for the services you provide.
Premiums will vary, depending on the level of income you have and the amount of cover you opt for.
A sensible approach to PII may be to opt for the most comprehensive level of cover you can afford. If very basic, you may have to find the shortfall yourself should a case for damages be awarded against you.
Over time, perhaps as the nature of your work changes or your business expands, it may make sense to revisit your level of cover to ensure that it still matches your needs.
Another point to remember is that if you stop working and cancel your insurance, your cover may just stop. The nature of your work may be such that problems may take some time to appear so you could still be at risk from being sued.
You may see this referred to as run-off cover.
In a similar vein, work carried out prior to PII being taken out may also need to be catered for. This may be known as retroactive professional indemnity insurance cover.
Professional indemnity insurance to protect your business
Whatever the nature of your business, you have probably worked hard to get to where you are today. Yet did you know that all that hard work could typically be obliterated by just a moment’s bad luck or human error? Welcome to the domain of professional indemnity insurance (PII)!
A moment’s misfortune
It’s typically a basic principle of legal action that a lack of intention does not in itself remove liability.
What that means is that however much you may have tried to avoid it happening, if you cause damage to a client through accident or professional negligence then you may be vulnerable to having damages awarded against you.
In some cases this could all revolve around an error happening in just a second or two. Accidentally losing that highly confidential client data or sending very commercially sensitive information to the wrong company, are just some of the things that could land you in very hot water.
Of course, the problem may be more systematic. Perhaps you’ve been unlucky and find you are unable to meet your commitments due to circumstances beyond your control. The problem is that your client may not see it that way and hold you to be in breach of contract due to professional negligence.
Whatever the cause, if your client launches a legal action for damages against you then you’ll typically start seeing some major costs mounting up very quickly.
Professional indemnity insurance
This form of protection typically offers help in two respects:
- legal and related costs (you may incur these even if the action is subsequently dismissed or you win);
- covering subsequent awards against you.
As with any form of insurance, these policies have their own specific conditions and terms. The exact circumstances of cover and the amounts involved will typically vary amongst providers and it may be a sensible idea to peruse these closely before making any final purchasing decisions.
Note that although your intentions may or may not be a factor in a court finding against you, they may well have an effect on your insurance. Some types of cover are only available if the actions that lead to the claim were categorised as accidental – typically all professional indemnity insurance policies may not cover criminal actions or malicious and intentional damage caused to a client.
Protecting your business with professional indemnity insurance
Professional indemnity insurance (PII) may help protect your business if a mistake on your part causes a client to sue you for damages.
How?
As a professional businessperson, you may take a lot of pride in providing the best level of service you can to your clients. However, you can’t be 100% sure that your actions will never unintentionally cause your client serious financial problems.
This could be because something you or one of your employees has done while providing services has in fact resulted in financial loss or reputation damage of one form or another for your client.
If your client takes you to court, professional indemnity insurance (PI insurance or PII) typically includes funding for legal bills whether or not the actual claim itself is successful. It would typically also meet the costs of any damages awarded, providing of course they related to an insured risk.
Cover for financial loss
Amongst other things, financial loss may happen as a result of:
- bad advice given by you that led to a loss of income for your client’s business;
- your client having to reduce output or shut down as a result of faulty workmanship on your part (e.g. in computer systems);
- you being unable to deliver within agreed timescales;
- your client having to bring in other professionals in to get the situation back in operation.
Other less tangible causes may include:
- libel or slander;
- defamation;
- breaching confidentiality rules;
- loss of data;
- infringement of copyright.
PII will usually cover you for these actions and many others provided that there was no intention to cause damage or break the law on your part.
Not mandatory
For some businesses like accountancy, indemnity insurance for professionals is compulsory. For those other businesses where PII is optional, some clients may still prefer to use the services of professionals who are covered by PII as they may typically regard it as a sign of professionalism and responsibility.
In a competitive market, having a few more plus points on your proposal may do no harm.
Why bother?
Professional indemnity insurance, like any insurance, may be something that you never have to call on. As such, it may seem tempting to do without it, save some money and take a chance. On the other hand if something does happen, it may seem like a very cost effective option indeed.
Who needs professional indemnity insurance?
If you run your own company then the benefits of professional indemnity insurance (PI insurance) should be seriously thought about. This cover can help protect your company against unexpected financial loss due to a claim made against it.
In some professions (such as accounting), professional indemnity cover is a compulsory requirement for all members in practice and can typically provide cover for their statutory and contractual obligations.
You may also find that some clients will only work with you if you have evidence of cover – this protects you and them in the event of a claim.
What it does
Minimising any financial loss is the key to professional indemnity insurance. It can help your business survive if something goes wrong. Keeping your business running with as little disruption as possible as well as minimising any financial loss may be achieved with professional indemnity insurance.
And usually, even the self employed can benefit from the financial protection offered by professional indemnity cover.
A claim can be made against your business where your customer suffers some form of loss because of actions – or lack of actions – on your part or that of an employee. Unintentional mistakes can and do happen even to the best of managed businesses, and yours is no different. The cover will typically help pay for the cost of defending you against any allegations made against your company, as well as damages. There will of course be limits as to how much you can claim.
Public liability insurance and sometimes employers’ liability insurance may also be part of your PI insurance package or can often be bolted on, potentially giving you all-round protection.
PI insurance quotes
Getting covered can be easy. It is important that you consider buying the cover from a specialist provider of professional indemnity insurance. Buying it from someone who has expertise within your particular sector can help you find the right product, rather than trying to go for a one-size-fits-all type of policy that a traditional or mainstream insurer may offer.
It makes sense to shop around and get a professional indemnity insurance quote - why pay more for it than you have to? This insurance offers a wide range of benefits, protecting you against the financial distress caused by third party claims made against your business, but there are competitively-priced options available in the market place, so take advantage of them!
Peace of mind with professional indemnity insurance
Professional indemnity insurance is something that may be worth considering. You may also hear it called PI insurance or even PII.
If you run a business, you may think that nothing will ever go wrong – for example, you will never be sued or accused of negligence. However, some things are beyond our control and things may sometimes go wrong.
PI insurance typically provides your business with protection in respect of any legal liability which arises out of the exercise and conduct of the business. Having that peace of mind can leave you free to concentrate on running your business.
With some professions, PI insurance can be legal requirement of some trade bodies. Whether it is obligatory or not to your business, it is important that you choose the right PII policy with which to protect your company.
Levels of protection
There are different types of professional indemnity insurance - some may specifically be tailored to meet the needs of your particular industry - and, often, different levels of cover too. These can help protect you and your business against the financial fallout of a claim.
Consider this - would your business survive if it was faced with a claim of negligence against it? One claim could cost you a substantial financial sum and, in the worse case, even bring your company to its knees. But having the financial protection of this insurance in place may help stop this.
A professional indemnity insurance policy may help take away the stress that a lawsuit against you would cause and provide financial assistance with legal and compensation costs.
The cost of cover
You may feel that PII is an expensive, unnecessary overhead. However, it may be worth seriously considering professional indemnity insurance as it need not cost a lot - unless it is a legal requirement of the trade you are in, in which case, shopping around for the most suitable deal regularly may be an option.
If you are considering this insurance, then you need to ensure that you buy it from the right place. Specialist providers of professional indemnity insurance often can offer tailor made policy options so that you to get the protection required.
The need for professional indemnity insurance
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.
The need for professional indemnity insurance
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?
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
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.