Typical management consultants professional indemnity insurance features
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.