10 THINGS TO KNOW ABOUT PROFESSIONAL INDEMNITY INSURANCE
All following information compiled and supplied by QBE European Operations (www.QBEeurope.com)
A GUIDE TO PROTECTING YOUR BUSINESS
1. Do I really need Professional Indemnity insurance?
Do you provide advice or a professional service to clients? If so, it may be advisable to consider professional indemnity (PI) insurance. It’s a type of business insurance that can provide cover for disputes arising from a mistake or allegations of negligence.
Most businesses invest time and effort into looking after their customers and building up a good professional reputation. Unfortunately, mistakes can happen and disputes can arise, often leading to hours of worry, expense, bad publicity and even significant damage to your professional reputation. Professional Indemnity insurance can help take away some of the worry and defend your claim in court should it come to that.
Some real world examples that could lead to a dispute and a claim for financial damage:
• A website hosting company accidentally deletes clients’ websites
• An architect specifies inadequate materials for a construction project
• An IT specialist installing software onto a client’s system accidentally corrupts important files
• An advertising agency prints the wrong telephone number on a client’s advert
• An employee accidentally posts confidential client information on the company website
• An accountant uses an outdated form which results in their client underpaying their tax returns
• A business consultant provides strategic consultancy which leads to legal repercussions, fines or loss of business for their clients
• A direct mailing firm accidentally sends out the incorrect draft of a mailshot containing wrong or defamatory information
• A logistics firm directs deliveries to incorrect addresses
• A marketing firm suggests a brand name that means something negative in another language
Basically if a business can get things wrong in the provision of a professional service they have an exposure.
PI insurance doesn’t just cover mistakes made, it also steps in to defend you should your client accuse you of making a mistake even if the basis of their accusation is unfounded.
2. What is a ‘professional service’?
A professional service is an intangible service being provided by people who are selling their skills and specialist knowledge based on their qualifications or historic experience. Such people are relied upon as being experts in their fields and as holding a greater level of knowledge and specialism in their subject matter than the average person.
Professional services can include:
• Software development
• IT services
• Services which depend on specific qualifications and training such as solicitors, accountants and surveyors
• Other non-manual services which depend on a specialist knowledge and skills such as commercial artists, safety consultants and training specialists
3. What does PI insurance cover?
Where the insured firm or party are legally liable, whereas insurance such as Public Liability is designed to cover against physical damage, Professional Indemnity insurance is designed to cover financial damage which a client may claim has arisen as a result of negligence, error or omission, misstatement or misrepresentation arising out of professional services.
Over and above the standard errors and omissions cover, many PI policies may also include cover for claims made against you which arise from:
• Loss of documents in many different formats
• Accidentally releasing confidential information about clients
• Accidentally saying or writing something which is deemed defamatory
• Unintentional use of third party copyrighted images, texts or designs
• Dishonest acts of employees.
4. But I didn’t charge my client for this work... Do I really have an exposure?
But I didn’t charge a fee...
But it was just an offhand comment...
But it wasn’t part of the job I was employed to undertake...
But I was just helping a friend out with a personal recommendation...
I know you’re my friend but as you are a professional accountant I relied on you when you said our books were all in order...
I appreciate that you only came in to measure the boundaries, however as a professional surveyor we relied on your confirmation when you assured us that the building was structurally sound...
I know we only met briefly but since you’re a professional business consultant I assumed you were giving me good strategic advice...
The IT guy who came to install our printers said that our network security was up-to-date...
You recommended the contractors I employed. As my architect I relied on your recommendations...
In today’s compensation culture people are far more inclined to look for somebody to blame when things go wrong. It doesn’t really matter whether you charge a fee for your services or offer what you see as some friendly free advice, a professional owes a duty of care to clients and if something goes wrong there could be a claim for financial compensation.
Whether you think the claim is justified or not, where you could be held to be legally liable, having PI insurance in place can offer you some peace of mind.