You may decide you need Professional Indemnity (PI) insurance if your business gives advice, offers a professional service, or handles client data or intellectual property. Some professional bodies and regulators require that their members hold PI insurance. If you work in accountancy, architecture or chartered surveying, it’s likely that you’re obliged to have PI insurance. You may also find that your client contracts require you to have a particular level of PI insurance. However PI insurance is necessary for almost every profession, from large businesses to beauticians, teachers and trainers. If you are alleged to have provided inadequate advice, services or designs to a client, PI insurance provides cover for the legal costs and expenses in defending the claim, as well as compensation payable to your client to rectify the mistake.
There are certain characteristics to be found in common with professions that require PI cover:
- Specific skills which enables a professional to offer specialised service
- Professional bodies that test and regulate competence and conduct
- Intellectual and practical training involved
- Continuous professional development
- The service calls for a high degree of detachment and integrity in exercising personal judgement on behalf of the client
Professional Indemnity policies operate on a Claims Made basis, this means the indemnity is in respect of claims made against the insured and notified to insurers during the policy period, irrespective of the actual date of the neglect, error or omission giving rise to the claim. This contrasts with Claims Occurring (as is the case with public liability and employers liability policies) where the indemnity is triggered by a loss occurring during the period of insurance, although a claim may not be brought for weeks, months or even years later.
Insurers prefer a Claims Made policy as there can be a significant time lag between the occurrence and when a loss or claim is realised. It is challenging for insurers to determine appropriate reserves for claims that have not yet been made. Also when a policy is underwritten, the premiums are based on cost and loss data available at that time. Since claims are typically reported many years later, the losses may be significantly higher than the amount projected and a Claims Made policy minimises the influence of inflation.
Traditionally, PI Insurance was provided on the basis of an indemnity against liability at law for damages and claimant’s costs and expenses in respect of defined types of claims:
- Breach of professional duty by reason of neglect, error or omission
- Dishonesty of any employee or agent
- Libel and slander
- The consequences of loss of or damage to documents
The market is now moving towards Civil liability wordings which restrict the cover by means of various exclusions, so that liabilities which are more properly insured under other policies (public liability, employers liability, motor etc.) are excluded. This all embracing term includes all the types of claims under the standard cover plus any liability which is not criminal. Further, the indemnity is in respect of ‘claims made against the insured’ which is not as restrictive as the ‘damages and claimant’s costs and expenses’ provision in the traditional wording.
If the policy is written on an Any One Claim basis, the limit payable under the policy is the maximum payable in respect of any one claim during the policy period
If the policy is written on an Aggregate basis, the limit payable under the policy is the maximum payable in respect of any one claim during the policy period
What does my Public Liability and Business Insurance cover?
A public liability policy provides cover to you in case you are found liable in causing physical damage to a third party while PI insurance protects you while you provide services and advice for a fee. Again, PI and business insurance each protect against very different circumstances. Business insurance safeguards against material damage to your premises, while offering public liability cover. However, this does not protect you against liability for services your business offers, even if you are self-employed. Therefore, it’s essential to take advice on the correct covers for your business.
Typical PI claim examples:
- Losing or misplacing confidential documents.
- Accidentally sending an email to an unauthorised person, leading to your client suing you for breach of confidentiality.
- Using a copyrighted image or photo without getting the appropriate rights or licence.
- Advising a client regarding the transfer of funds to family members, and the client later becoming liable for paying capital gains tax.
- Failing to carry out a required audit.
Engineers and tradesmen
- Making a mistake in measurements that results in additional costs to rebuild, or causes damage during or after construction.
- Installing lighting that is later found to be non-compliant with regulation, and therefore needs to be redone.
- Designing a machine that proves inadequate to cope with the weight of items it is meant to produce.
- Designing and running a direct marketing campaign, where the brochures were wrongly addressed. The client claims damages for loss of revenue.
- Creating work using the wrong Pantone colour for the client’s logo, with client claiming costs to reproduce the work.
- A client claiming that you undersold a property, and several months later it’s resold for 120% of the previous price.
- A surveyor forecasts cost for the construction of a number of restaurants at the start of each project. The client claims that the monthly and year-end costings and forecasts were inadequate, making the contracts non-viable.
- Failing to arrange travel insurance for a client who falls ill while on holiday in Africa, claiming medical bills and expenses.
- A person injuring himself by falling from scaffolding you approved.
- Designing the layout of office premises and the client claiming that this was not in accordance with their requirements.
- Giving the wrong advice about planning permission on a plot of land.
At Campion Insurance our team of experts take time to understand our clients and provide tailor-made solutions that really meet their needs.
Talk to one of our experts today for a complete review of your Professional Indemnity needs.
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