Indemnity insurance is essential for you as a business professional or consultant as it could protect your business from legal disputes and accusations of negligence made by your clients. By having this insurance, you are protecting your business from potential claims sought from clients – making it worth the additional insurance premium.
Professional indemnity insurance covers legal costs, expenses, and compensation paid to a claimant as a result of a service, which has been proven to be inadequate or negligent in any way, resulting in a financial loss for your client.
The concept of negligence is subjective. Without proper insurance cover, you may not have access to the advice and legal defense you need in the event of an allegation and claim.
Throughout this guide, we will look at all aspects of professional indemnity insurance, including industries where it is recommended. We will also review some example claims to provide a full understanding of this product.
WHAT IS PROFESSIONAL INDEMNITY INSURANCE?
When you take out an insurance policy the hope is that you will never have to use it; however, unlike Public and Employers liability insurance whereby the policy is perhaps more beneficial to the claimant, professional indemnity is designed to protect you and your profession.
Professional indemnity insurance protects you and your business if a claim is brought against the business by a client, for reasons relating to a service that has caused them a financial loss.
It also covers your business for intellectual property infringements, claims of dishonesty or defamation, and those relating to the loss or inappropriate use of documents or data.
Therefore, if you offer advice or service you could be at risk of a professional indemnity claim.
DO I NEED PROFESSIONAL INDEMNITY INSURANCE?
Professional indemnity insurance is not compulsory for all professions within the United Kingdom. However, for some, including accountants it is a mandatory requirement. For those professions that would like to be members of a chartered institute, professional indemnity insurance may not be necessary, or your profession may not be required by law to hold such cover, however, it is still imperative that you consider professional indemnity insurance; especially if your business provides professional services that involve advice or guidance, handling data or intellectual property. If you do not have professional insurance and a negligence claim is made against you, the financial and reputational repercussions could be devastating to your business.
Some professions which should consider professional indemnity insurance include:
Business and Management Consultants:
Self-Employed IT Professionals
IT contractors, freelance consultants, programmers, and developers are all professionals that may require professional Indemnity-Bond-Form-No.3756Indemnity-Bond-Form-No.3756insurance. Potential claims could include dissatisfaction with software or hardware recommendations to improper use of images that result in a fine for the client.
Both small recruitment agency directors and recruitment consultants should consider professional indemnity insurance. Clients may be dissatisfied with your advice or recommendation of a new employee that causes the business to suffer a loss in the future.
Design is a subjective area; and whilst you may follow a client’s brief exactly, they may still be dissatisfied with the end product or service and decide to claim. Interior designers, web designers, and graphics specialists should all consider professional indemnity insurance.
Teachers and Tutors
If you teach or tutor, in any area then your business, advice, and expertise are open to potential claims.
It is important to remember that your professional indemnity insurance is specific to your business type, size, and requirements. This ensures that it provides the level of protection that’s needed.
LEGAL RISKS OF OPERATING WITHOUT PROFESSIONAL INDEMNITY INSURANCE
Operating without professional indemnity insurance leaves your business open to claims from third parties. Usually, they will be your clients, but other third parties could also potentially make a claim.
If you work in a professional sector, then professional indemnity insurance can protect you against civil liabilities which include breach of duties, tort, and contract. Your insurance policy can be arranged to cover as many civil liability areas as necessary.
If you have a contractual relationship with your clients, then this type of professional insurance is essential. Commercial contracts almost always include a clause that relates to deliverables but also that all duties will be carried out with ‘reasonable care and skill’. When a client makes a claim against you on this basis, they will attempt to prove you have failed to deliver care and skill to a reasonable level.
If you do not have a contractual relationship with your client, but they have a legal case to make, then they may make it under tort law. Torts cover intentional, and accident acts. They usually occur based on a tort of negligence and a tort of defamation. Other types of tort include property (trespass), economic (fraud, conspiracy), and dignitary (invasion of privacy). These liabilities are less likely to apply to professional insurance claims.
Breach of Duties
Professional indemnity insurance may cover you for breach of statutory duty, breach of intellectual property, or breach of fiduciary duty. Cover for breach of statutory duty is particularly important in industries such as accountancy, architecture, quantity surveying, or estate agency.
Breach of intellectual property rights can include copyright, trademark, patent, plagiarism, and media rights. Finally, fiduciary duty is a legal relationship of confidence and trust bet
ween your business and your clients. Breach of fiduciary duty is usually when your client believes you are not acting in their best interests.