Professional Indemnity Insurance – What You Need to Know
What do accountants, biologists, historians, jewelers, statisticians and wedding planners have in common? All of these professions, and many others, need professional indemnity insurance. If you provide a service or advice to clients, this type of coverage can protect you against crippling damage claims and legal costs.
This type of insurance protects your assets and your professional reputation in case you make a mistake, and a client suffers a financial loss as a result. The client may then sue you to recover their losses.
As a person who effectively runs their own small business, being sued can expose you to ruinous expenses. Not only will you have to pay the costs of defending yourself in court, if there is a ruling against you, you will have to pay damages. And there are other expenses involved, such as lost income if you cannot work since you have to be in court.
What Is Professional Indemnity Insurance?
Professional indemnity will cover the cost of third party claims, including legal and other expenses. It will include anybody who can be held liable for a claim, including you as the business owner and your employees. Even if you already have basic business insurance, it may not be enough to cover all your costs.
For instance, some of the other costs covered under professional indemnity coverage include:
Missed work. You will be reimbursed for time lost from work if you or your employees have to go to court.
Government fines. You will be reimbursed for any civil fines you are levied due to the services you offer.
Contractor errors. You will be covered if there is a claim arising from the work of one of your agents, contractors or consultants.
Lost documents. You will be reimbursed for the cost of replacing a client’s documents that you have lost and are responsible for.
Some of the circumstances that are included in professional indemnity policies:
Errors and omissions. You gave a client advice that is insufficient or wrong, and which resulted in financial losses for them.
Intellectual property violations. You violated a patent, copyright or trademark, and the client was sued or had to pay for the right to use the IP.
Fair trading violations. You violated consumer protection or fair trade laws, and the client was fined.
Contractual violations. You violated the terms of your contract with the client and they sued you.
Slander, libel or defamation. You damaged someone’s reputation and the client was sued.
Employee dishonesty. Your employee committed a crime or acted in a dishonest manner, resulting in losses for your client.
It should be noted that you might not necessarily have made a mistake. If they are unhappy, the client may simply file a claim against you, even if their case has no merit. You will still be covered by your professional indemnity insurance policy.
The mistake also does not have to have been made within the one-year policy period. Insurance providers understand that mistakes can be made years before a client files a suit. Thus, they will assign a retroactive date that is usually before your policy became active.
For instance, the retroactive date may be five years before you bought your insurance. Thus, you will be covered for any mistakes that took place during this period, as long as your policy remains active.
If your insurance has lapsed or you have cancelled it, then you will not be covered even if the mistake took place when it was still active.
The following circumstances, however are not covered:
Intentional damage. If you deliberately set out to inflict harm on a client, the resulting damages and legal costs will not be covered by the insurance.
Known circumstance. This refers to claims made as a result of events the insured was aware of, or should have been aware of, when they bought the policy. To illustrate, if you made a mistake that could result in a claim against you and you were aware of this when you bought the policy, you would not be covered in case you were sued.
Other Types of Liability Insurance
Claims arising from bodily injury and property damage are generally excluded from professional indemnity policies. However, these exclusions can be removed, depending on the type of service the insured provides. For instance, architects and builders are likely to see most of their claims arising from these circumstances.
Some examples of professional indemnity claims:
If an accountant offers tax advice that results in a client being audited and being charged higher taxes.
An IT consultant fails to deliver a project on time, which results in a business launch being delayed and the client suffering losses.
A builder finishes a kitchen, but it does not fit the client’s specifications.
Professional indemnity insurance is not the same as public liability insurance, although your business may need both. Public liability policies cover third party claims resulting from accidental injury, death and property damage.
The difference between the two is that the claims arise from your business activities. For instance, if a client were injured while visiting your premises because of loose carpeting, this would be covered under a public liability policy.
A type of coverage under public liability insurance that your business may also need is product liability insurance. This covers you in case a product that you sell or supply, or use in the course of providing a service, results in a third party suffering death or injury or emotional distress, or causes property damage.
Why Use a Broker?
If you are going to buy professional indemnity insurance or other types of liability insurance, you must work with an insurance broker. Brokers are specialists in risk management as well as insurance, and can provide you with the right advice as to the best policy to buy.
An experienced insurance broker can help you better understand these two types of coverage, and provide you with the right advice as well as constructing a policy that protects you and your business. They will identify what risks you and your business faces so that you can decide the best type of policy to take out. They will also provide you with the right advice.
These two types of insurance can be complex, and you may end up with a policy that has gaps in coverage that can prove financially devastating. A broker can design a policy that protects you against all the major risks you and your business faces.
What is the Difference Between an Insurance Broker and an Insurance Agent?
A broker is not the same as an insurance agent, and you must understand the difference between the two. A broker represents you, the insurance buyer, while an agent represents the insurance provider.
Thus, the agent will try to sell products from a particular insurer. The broker, on the other hand, will submit your application to various providers and solicit quotes. They can help you find a good deal on insurance, and even negotiate on your behalf to get the most affordable premiums.
Depending on the type of advice they give, the broker may be required to provide you with a written document known as a Statement of Advice.
There are two types of brokers. A retail broker acts as an intermediary between you and the insurance market. A wholesale broker specializes in a particular line of insurance and works primarily with retail brokers, and rarely interacts with individual buyers.
A broker will also provide you with other types of services. For instance, if you need to make a claim, the broker will assist you in filling out the forms and even act as liaison with the insurance company to ensure that there are no delays.
They can also design a risk management program that will minimize some of the risks your business faces. By doing so, you will enjoy lower premiums on your coverage.
An insurance broker may charge for their services with a fee or may get a commission from the insurer. They are required by law to inform you of their fees as well as the commissions they receive, which may be set out in your Statement of Advice. If they have not yet provided you with advice, their fees will be listed in their Product Disclosure Statement.