Working as a freelancer or a consultant can give you the freedom of being your own boss. However, that freedom brings with it personal and professional responsibilities. Professional Indemnity Insurance (PII) may help you better manage any claim from your client that your work resulted in material damage to their business.
If you are in an occupation or profession where you give advice or make recommendations, you may find yourself in the position of having to defend yourself against claims that your negligence, errors or omissions caused your client to suffer financial losses.
PII may typically cover the cost of having to defend yourself against such allegations and will also cover damages awarded against you if the allegations are upheld in court.
This could include losses from:
- breaches of client confidentiality;
- loss of documents or data;
- libel, slander or defamation;
- any infringement, unintentionally, of intellectual property rights;
Not always mandatory
For many professions, professional indemnity insurance may be mandatory. Architects, surveyors, solicitors, accountants etc are just some examples.
Even if PII may be optional in your situation, it may still prove invaluable and not just if there is a dispute with a client.
In a highly competitive job market, having PII cover could give you the edge against another applicant for a position. A prospective client may see PII as a significant factor in your favour.
If you have employees then your PII may typically cover them too for their negligence while carrying out work on your behalf, though do check, as not all professional indemnity insurance policies will offer this cover as standard.
Of course, if you have employees, you may find it valuable to consider what your position would be if they were to sue you for some reason. Some professional indemnity policies may also provide cover for cases such as these.
Public liability insurance
PII may also provide public liability cover.
Public liability insurance may help protect you against claims by third parties of bodily injury or property damage caused by you or your employees a result of your business activities.
Professional indemnity insurance may be optional as far as your particular occupation is concerned. It may, however, prove to be essential to help you operate in today’s litigious business environment with some peace of mind.
For anyone working on a freelance basis offering advice or providing services to clients, professional indemnity insurance (PII) may provide financial protection against being sued by your client.
Can be mandatory
For some occupations like accountancy or solicitors for example, professional indemnity insurance (PII) is typically mandatory.
For others, while this may not be the case, PII though optional, may be highly advisable.
In fact, you may find that your clients may insist that you have this type of cover.
Even if they don’t, your proposals/CV may look more impressive to them if they can see that you take your responsibilities seriously by having PI insurance cover in place.
Protection offered by PII
Your client probably paid a significant amount of money for your services as a consultant. They may rightly expect to receive a high standard of work in return and in most cases they hopefully do.
If, for whatever reason, this turns out not to be the case and your client’s business suffers losses that could be attributable somehow to errors or negligence on your part, then they may decide that they may be able to recoup some of those losses by suing you.
Amongst other things, this could be as a result of:
- accidental breach of confidentiality;
- loss of documents or data;
- damage caused by label or slander;
- dishonesty on your part;
- unintentional infringement of intellectual property rights.
So if you do find yourself being sued by your client then your PI insurance may help cover any damages awarded and legal costs.
This obviously assumes that the level of protection you have put in place is commensurate with awards typical for the type or work that you do.
If you have been tempted to economise on premiums and buy a lower level of cover, then you may still find yourself having to find substantial amounts of money to make up any shortfall between the award and your insurance limit.
Another area of insurance cover that may be relevant to you as a consultant is public liability cover. This can typically provide protection against third parties or members of the general public who sustain injury or whose property is damaged as a result of your actions.
This type of cover may be included with some professional indemnity insurance policies.
Any business where you: give advice; work with client data or documents; or work within a client’s premises, may benefit from having the peace of mind offered by professional indemnity insurance (PII or PI insurance).
Policies may differ between providers and there are typically limitations, so when considering a policy you may wish to compare what is offered for the premiums.
Do you need insurance?
If you are a professional, PI insurance may be your lifeline and it might mean the difference between you losing your business and keeping it. When you stop to consider how much legal costs may add up to if a client takes you to court, you may be able to see why insurance may be so valuable to you.
There are some professions where having professional indemnity insurance is compulsory, such as if you are an accountant, broker or solicitor etc.
Do you have thousands of pounds to spare?
Ask yourself where you might get your hands on thousands of pounds if say you were accused of slander. It might be that when you are accused of slander it was a slip up on your part and you in no shape or form meant to damage your client. However the client may not see it this way and the little accidental slip up on your part may potentially end up costing you your business. An insurance policy typically provides insurance against accidental libel and slander cases and often pays towards the costs of being taken to court, subject to a successful claim for costs being made and policy limits.
Looking for an insurance policy
Insurance providers realise that there are numerous types of business and different sizes of business. For example, you may work alone or you may have many people working alongside you in your business. Therefore, with some providers you are able to tailor the insurance policy to the size of your business and your needs. The type of business you are running is also a consideration when looking for professional indemnity insurance.
You may also wish to take into account that some insurance providers offer public liability insurance in with your policy, while others may ask that you add this in for a little more each month in premiums. Public liability insurance protects your business against the possibility of a member of the public making a claim against you for loss or damage caused to them whilst on your premises.
There is typically a limit to the amount that the professional indemnity insurance pays out towards your costs, if a claim has to be made. Check the small print and the terms to find out if the policy provides adequate cover, otherwise potentially you may still have to find a great deal of money towards the costs yourself in the event of a claim.
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.
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;
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;
- libel or slander;
- loss of documents or data;
- errors on your part;
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.
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.
Professional indemnity insurance (PII) may help protect your business if a mistake on your part causes a client to sue you for damages.
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;
- 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.
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.
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.
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!
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.
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.
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.
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.
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.