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Professional indemnity (PI) insurance is a form of liability cover that can help to protect yourself and your business from claims made against you by dissatisfied clients. Businesses often need liability cover to protect themselves from any mishaps or mistakes that may cause upset or damage to a third party. If you offer advice, designs or specifications to a client, be that for a fee or for free, you are advised to cover yourself or your business with pi insurance. In fact many clients will ask to see proof of pi cover to know they are working with a trustworthy firm with whom they can share company data without concern.
Many people confuse PI cover with Public Liability Insurance (PL) -- PL cover protects a business from damage to third party persons or property, essentially a physical loss. However, professional indemnity covers the claims brought against the policy holder for what is considered by the client to be professional negligence, be that a monetary loss relating to a loss in reputation or a bad business decision suggested by the client.
Of course, it is important to remember that pi insurance will only cover you if you make a genuine error or omission. Deliberate omissions or purposeful errors made whilst working for a client will not be covered. Many policies will also feature exclusions, for example specific tasks on a job or work done abroad. Make sure you read your policy document to know exactly what you're covered for.
Who needs professional indemnity cover?
PI Insurance would be of benefit to any of the following sectors or anyone who works in one of the following occupations: freelance consultants, contractors, architects, brokers, solicitors, financial advisors, accountants, computer advisors, recruitment consultants, estate agents, letting agents, medics, marketing and media based employees, management consultants, publishing firms ... the list may be long, but if you do not see your occupation here, don't assume you don't need cover, almost all businesses offer advice so there is almost always a PI risk present. If the risk is small this will be reflected with a small premium -- it's always better to have peace of mind.
An extreme case where PI insurance could help protect a business is...
A man looking to impress his wife enters a florists shop. The florist suggest that lilies would be please his parter. The husband takes the lilies home and his wife falls perilously ill due to her lillie allergy. The woman's husband then makes a claim against the florist for professional negligence that resulted in his wife's trip to hospital.
If the florist had a PI policy, he/she could alert the insurance company about the claim and let them handle the case appropriately. Whilst, this example is extreme, it shows how almost any firm would be better protected with a PI policy.
Essentially PI is needed if you're considered liable for errors of judgement or admin errors that may lead to a mislaid or damaged document, a loss of business and possibly a loss of reputation. Unhappy clients may make claims for loss of data, libel and slander, dishonesty, passing off copyrights or a breach of confidentiality. It can help to have a well drawn up contract of exactly what you are responsible for when working with a client. All complaints and concerns should be dealt with quickly and any incident that may lead to a claim should be explained in detail to your insurer -- this will give them time to prepare a defense for you, should a claim materialize.
What should I look out for?
How much cover do you need ... whilst this is up to you, it's important not to under-insure when it comes to PI. For example, whilst over-insuring may lead to a more expensive premium, you will still be covered if a costly claim comes your way. However, insuring yourself for an indemnity amount that is lower than it could be a bad move. This would mean that your insurance company will only pay out the amount of indemnity you requested, regardless as to whether this covers the cost of fixing any mistakes made as well as legal fees and the like. Some insurers will operate with an indemnity limit per claim, whilst others will operate with a indemnity limit that relates to a certain event, rather than each individual claim from the event.
It's also worth thinking thoroughly about how much voluntary excess you require; choosing a large amount of money means you may be putting your company at risk. For example, if you state that you are willing to pay a voluntary excess of up to Â£20,000, the insurance company will not pay a penny if a disgruntled client sues you for Â£19,999. Of course, many brokers will place an excess on a policy anyway, meaning you may not be covered for smaller claims -- always discuss this with your broker.
How often do I need to purchase PI cover?
Professional indemnity policies generally run for periods of 12 months. When your policy is finished you are effectively uninsured for any new work taken on. However, you may also be uninsured for any claims made against from previously insured period. It can be complicated stuff! If you are ceasing to trade or you moving away from consultancy you can usually arrange run-off cover to protect you for past work. If you're just moving to another insurance broker then you will most likely be able to arrange retroactive cover, that will protect you against any claims made in the present relating to work done in the past.