Professional Indemnity Insurance – What, Why and When

Professional Indemnity Insurance can be both complicated and difficult to understand. A lot of policies use words that the majority of us simply don’t understand. So, here is our simple guide as to what is professional indemnity insurance, why you should have it and when you might use it.

What is Professional Indemnity Insurance?

Professional Indemnity Insurance, which is sometimes known as Professional Liability Insurance can cover you for acts, errors or omissions that you make in the course of your work and which cause your client a financial loss. In simple terms, it can cover you for mistakes that you make. The policy can cover your legal defence costs and any award that maybe made against you. It can even cover the costs of defending you if you are wrongly accused by a client of making a mistake.

Why should I have Professional Indemnity Insurance?

There are various reasons why you need or should consider having Professional Indemnity Insurance:

• To protect you and your business – A claim against you or your business can be costly. Defence costs alone can reach eye watering numbers and you must remember that any claim against you could far exceed the amount you were paid for the work you did. Depending on your company setup you may also be personally liable for any claim made against you which means that your personal assets could be called upon to meet any award. Professional Indemnity insurance can provide you with the protection you need.
• Contractual Requirement – In some industries, such as IT, it has been standard practice for many years that under client contracts there is a requirement to hold Professional Indemnity insurance. In other industries, such as digital marketing for example, it is becoming more and more common. It is important that you check the insurance requirements of any contract that you enter into and ensure that you do comply.
• Industry Body Requirement or Recommendation – There are certain industries who are required either by law or by their professional body to hold Professional Indemnity Insurance. Many professional bodies will also stipulate a minimum amount of insurance that ought to be held. Others, however while they do not require it, do recommend it.

When would I use my Professional Indemnity Insurance? – A claims example.

Not a day goes by where we don’t get asked, what could happen? and when would I need my policy?  The easiest way to answer that is by way of a couple of examples:

• Rob works as an IT consultant for an online retailer and he has been charged with implementing a new online sales system for the brand. The project goes live, but Rob has forgotten to configure the payment function correctly and as a result the online retailer loses 24 hours’ worth of sales. The client contacts Rob to advise that they are going to be claiming for their losses caused by his mistake. Robs Professional Indemnity insurer steps in and appoints a solicitor to manage the process and defend Rob.

• Josey works as a marketing consultant for a drinks company. The drinks company has asked Josey to plan for the launch of a new product. Josey has been provided the branding and has raised concerns with her client that it looks very similar to a competitors and that they should seek legal advice before launch. The client tells Josey to go ahead anyway and she launches the campaign. The competitor immediately issues proceedings against Joseys client and her client is blaming her. While, Josey does not seem to have done anything wrong, she will have to defend herself. Her insurer appoints a solicitor to manage the process.

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**Please note that the information and examples contained within this post are generic and insurance policies have variations in the cover they offer as well as the terms and conditions that may apply. You should therefore check your specific policy as to the cover it may provide you and if in any doubt speak to your insurance advisor.