Professional indemnity insurance can provide cover for businesses and individuals who deliver professional services from the legal costs and claims for damages from an act, omission or breach of duty that occurs as a result of their actions.
Examples of where this insurance may provide cover include:
- an accountant giving incorrect advice in relation to the customer’s purchase of a business
- an architect being sued for creating a flawed house design after the owners had to pay to fix an extension
- a marketing agency printing a client’s brochure with incorrect contact details, resulting in the client commencing legal action against the agency.
It’s important to understand how this type of cover works because a lot of people don’t think it applies to them, when it can provide an important line of defence in many different circumstances.
1. Professional indemnity isn't just for traditional professions
Don’t assume you can only take out professional indemnity insurance if you are a member of one of the traditional ‘professions’. You don’t have to be a doctor or a lawyer to take out this type of cover. In fact, anyone who is in a role in which they provide advice should consider whether professional indemnity insurance could provide protection from litigation.
“A lot of people like plumbers and builders give advice, but don't buy professional indemnity insurance. But they may be exposed if a customer follows their advice to their detriment,” explains Michael White, Steadfast’s Broker Technical Manager.
“Anyone who gives incorrect advice that results in a financial loss, including accountants, solicitors, mortgage brokers, engineers and project managers need professional indemnity insurance. You can also be held accountable for not giving advice you would be expected to have given,” he says.
2. You can be sued for not giving advice
Not only can someone face legal proceedings for giving incorrect advice that causes a loss, a professional may also be sued for not giving advice that is reasonably expected of someone working in their field.
“For instance, doctors may be sued if they fail to diagnose you are suffering from an illness, decline to send you for a scan when they may reasonable have been expected to or neglect to provide you with a duty of care expected of a professional,” he adds.
3. Professional indemnity insurance only provides cover when the policy is current
Professional indemnity insurance is ‘claims made’, this means it only covers claims made while a policy is live. So, if you take out a policy, then let it lapses, you won’t be covered for claims that concern events that happened when the policy was active.
“It’s also essential to understand the policy’s retroactive date,” explains White.
“We often recommend negotiating an unlimited retroactive date, so the policy covers you for claims relating to advice provided in the past,” he adds.
“If circumstances arise during the policy period and those circumstances could give rise to a claim being made against the insured at some later time, the circumstances need to be notified to the insurer.”
Professional indemnity insurance only covers policyholders while a policy is live. So if you take out a policy, then let it lapse, you won’t be covered for claims that concern events that happened when the policy was active. This means professionals should consider whether they need to maintain professional indemnity cover when they retire.
In some professions, such as accounting, there is a requirement to maintain cover when you retire or leave the profession to cover claims arising for advice given while working in that profession.
4. Professional indemnity can have policy extensions
While it’s important to appreciate risks for which you are not covered, it’s equally important to understand which policy extensions are available.
For instance, many policies will include extensions for investigation costs in the event a claim is made against a policyholder and he or she needs to retain legal services.
5. Professional indemnity insurance doesn’t cover all risks
Professional indemnity insurance is a complex area and many insurers won’t cover certain risks in policies. For instance, most insurers won’t cover builders and other entities in the construction sector for any damages that relate to building cladding, given the problems many strata buildings have encountered with flammable materials.
This means it’s essential to read the fine print in policies and develop a real understanding about which professional risks are covered and which are not.
As this shows, professional indemnity insurance is complex and it pays to work with an experienced insurance broker to help you get the right cover for your circumstances. That’s the best way to ensure the policy responds when it comes time to make a claim.
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