Professional Indemnity Insurance
If you are self employed or a business that offers advice, knowledge or skills, you might want to consider buying out a professional indemnity insurance policy. Professional indemnity insurance is also referred to as professional liability insurance. It is a kind of liability insurance policy, that provides protection for the financial consequences of professional negligence. This negligence usually occurs following a breach of professional care, either by neglect or error or omission. In essence, it will provide insurance cover to protect your business in the event that you accidentally provide incorrect advice or fail to perform a professional task.
As well as the financial consequences of an action, cover is also provided for legal and other costs in the defence of a claim. In today’s modern litigious society, when something goes wrong, usually someone is blamed and asked to pay. Even if claims are spurious, they still have to be defended and defence costs money. Cover is provided for the cost of defending a claim from a client, when a financial loss has occurred as a result of an alleged act of neglect error or omission. In addition policies will cover the cost of any damages, payable up to the indemnity limit of the policy.
Who needs a Professional Indemnity Insurance Quote?
Most businesses are now faced with tighter deadlines and increased competition especially when it comes to pricing. When people work to deadlines or under stress mistakes can happen all too easily, Even the most prudent business can find itself facing a claim for professional negligence. Almost any business that provides advice, design or supervision etc in return for a fee owe a duty of care to their customers and third parties either by means of contract or possibly tort. Buying insurance makes, its possible to provide a business with a “safety net” if things go wrong. Typical trades that purchase this type of cover typically include: Architects, Surveyors, Civil Engineers, Designers, Solicitors, Estate Agents and Estate Agents.
The duty of care owed as a professional is usually defined as “the exercise of reasonable skill and care in the provision of the service provided”. If a professional person fails in their duty of care, they may be liable for losses incurred by their client or third parties. Claims for negligence can be extremely expensive and many smaller businesses would certainly be unable to absorb the cost of a compensation award. Of course, making claims from this type of policy should be avoided if possible. Professional indemnity premiums are kept lower for the policyholder that remains claim free. You should consider this type of insurance if you:
- Give advice to clients
- Provide a professional service
- Handle confidential information
- Handle certain types of intellectual or copyrighted material belonging to third parties
- Must buy a PI policy because your trade association or professional body makes it mandatory for you do do
How Much Indemnity Cover do I Need?
Only the individual or business can really answer this question, based on the type of work being carried out. A realistic view needs to be taken on the amount of potential damages. It is worth remembering that by showing your professional indemnity insurance policy to a client, (and disclosing your sum insured) will not limit your liability, unless a monetary cap is agreed at the time of appointment. It should also be remembered that a policy of indemnity will have a set level of cover. This cover will only apply for the period the policy is in force. However, liability for damages can be unlimited in amount and extend over a lengthy period. Insurers will usually be able to offer a variety of sums insured. Defence costs are usually in addition to the limit of indemnity.
Under a professional indemnity policy, the limit of indemnity would generally operate in one of two ways. Firstly, on an each and every claim basis, what ever limit of indemnity you have selected applies to each claim that is made under the policy. However, a series of claims all arising from the same event would be regarded as a single claim for the purpose of applying the limit of indemnity. Secondly, the limit of indemnity is the total amount that will be paid for all claims arising within the policy period.
Professional indemnity covers operate on what is known as a “claims made” basis. The cover is retro active. which means the policy that is in force at the time the loss is notified, that will be operative irrespective of when the work was carried out or the alleged negligence occurred. Uk law is complex and liability attaches to individuals and directors in different ways. If an individual, partnership or limited company ceases to trade, that does not necessarily mean that a claim will not be forthcoming at a later date. Subject to limitation periods, it is therefore essential to keep a policy active in to the future.
How are Professional Indemnity Insurance Claims Made?
A self employed professional or a business purchases this type of cover for their own protection. The policy is not designed for the protection of the policyholders clients who cannot claim directly from the cover. First they must prove that the policyholder is liable. This in itself can be costly and time consuming and the policy will provide for defence costs. The client will have to prove negligence either under a service contract or in tort (a wrongful act or an infringement of a right (other than under contract) leading to legal liability).
If a claim for negligence is upheld, the individual or company is likely to be held responsible for losses incurred by the claimant which are deemed to be reasonably foreseeable. A well as damages, liability could also include the claimants legal costs. It is quite common for large sums of money to be spent on legal expenses, trying to retrieve a relatively small amount of damages. Once a claim is reported to the insurance company, they will tend to deal with the claim as appropriate, liaising with the policyholder when necessary. This in itself has a value for a business, dealing with any form of litigation without help can be hugely time consuming and costly especially where an individual, partnership or small business are concerned.