What does Professional Indemnity Insurance do?
Professional indemnity insurance cover protects professional businesses against their legal liability towards third parties for injury, loss, or damage, arising from allegations of professional negligence or that of their employees. It can also cover defence costs in the event of legal proceedings, as well as any compensation awarded.
To put it another way, PI insurance protects you and your business from financially crippling and often reputation-damaging claims by dissatisfied clients. Even the most respectable companies can find themselves in dispute with a client over a mistake.
What cover does a PI policy provide?
Professional Indemnity insurance works in a number of ways. Below are some of the danger areas your business could be exposed to:
- Negligence – a breach of duty of care
- Intellectual property -where you unintentionally infringe on someone’s copyrights, trademarks and broadcasting rights.
- Loss of documents or data – damaged, lost or stolen data and documents belonging to your clients
Dishonesty – liability arising from the theft of your clients’ money
It will cover you if you make a mistake in the professional services you have provided, should this lead to a dispute with a client. If the dispute becomes complicated, your insurer can defend your claim – right through to the High Court, if necessary. The PI policy can protect you from legal fees. Even if you lose, the policy will still cover you for any damages you then become liable for, subject to the level of cover your business is insured for.
Professional Indemnity insurance will also cover the cost of fixing any mistake on your part (again, up to the policy indemnity limit), which will potentially help to avoid a larger claim being made.
How much cover will I need?
The amount of PI cover (referred to as the maximum indemnity) your business needs depends entirely on the type of services it provides. There is no general rule that can be applied for how much cover your business will need. That said, it can be worth taking time to review contractual obligations with clients. Often, indemnity limits will be enshrined in such documents.
Sometimes your client will set a minimum limit of the indemnity they require before you can work with them. Many UK government departments, for example will require their contractors and consultants to have at least £5 million of cover.
When deciding on the amount of professional indemnity cover to have you should consider the value of the work you are doing for your clients and the potential financial impact on them should it go wrong.
It is also worth considering taking retroactive cover for work that you’ve already completed before the policy commences. This means that your professional indemnity insurance policy will cover you for any claims arising out of work you completed in the past. You will be given the option of taking out retroactive cover when you get your professional indemnity insurance quote.