You hear it all the time but what is professional indemnity insurance?
If you run a business, it’s important to protect your business against potential legal costs and claims by third parties for damages that may arise from acts, omissions or breach of professional duty/contract during the course of operating your business. In cases where a mistake or omission in your work results in financial loss or even injury to a third party, legal action can be taken against you to recover these losses.
How does professional indemnity insurance protect my business?
By taking out professional indemnity insurance, you are able to protect your assets and your reputation in the event this occurs.
A professional indemnity claim can result from:
- Breaches of contract, such as not achieving the results of a contract that result in further financial loss
- Provide negligent advice, for example, poor financial or legal advice
- Mistakes or omissions when providing a service
- Medical practice for medical professionals
- Infringement of intellectual property rights
- Breach of confidence
The list of professions that require professional indemnity insurance is broad and extensive. Below are some examples of professions or industries that commonly need professional indemnity insurance:
- Consultants and Contractors
- IT Professionals
- Medical Professionals
- Lawyers and Solicitors
- Recruitment Agencies and Consultants
- Fitness Professionals
- Teachers and Tutors
- Architects and Surveyors
- Design and Construction
- Town Planning
- Risk Management
Almost anyone providing a service should take out professional indemnity insurance. Professional associations may provide industry-specific indemnity insurance at a much lower cost, therefore it’s highly recommended that you investigate recommended cover for your specific industry.
What is covered by professional indemnity insurance?
Typically, professional indemnity insurance should cover you for the following:
- Damages and claimant costs against you
- Litigation costs
- Investigation costs on a claim
- Court attendance costs
- Public relation costs
What’s not covered:
- Intentional damage
- Fraud and dishonesty
- Known claims and/or circumstances
Why do I need it?
When legal action is taken against you, defending these claims can have a heavy impact on time, cost and damage to your reputation, irrespective of whether or not these allegations levelled against you and your business are true. As a small business owner or contractor, you may also be potentially responsible for the actions of not only your own but for those of your business partners, employees or volunteers who represent your business.
Many business owners have an “it won’t happen to me” mentality and often live to regret this. Often times, the actions (or inaction) that result in legal action is unforeseen and occur due to the actions of an employee or business partner. The cost of litigation to defend yourself can be up to the $100,00 mark for many businesses – an amount that can almost certainly cripple small businesses if you are not safeguarded against this.
Additionally, reputation defence is an often overlooked aspect of professional indemnity that can spill over to other parts of the business if not handled well. This can cause the business and its owner to be viewed as risky in the eyes of clients or stakeholders. As a result, many businesses experience loss of income as clients or partnerships are terminated.
Who is covered by professional indemnity insurance?
A professional indemnity insurance policy should cover your business, its employees, principal, directors or partners acting in the scope of their duties for the company.
Professional indemnity insurance ensures that you can go about your normal business operations with peace of mind. For many professions and industries, there are often strict guidelines outlined by an associated governing body on the level of professional indemnity insurance cover that is required to trade. There are often insurance providers that are specific to particular industries and worth looking into when considering your options for cover. If you aren’t sure what level of cover you should take out for your business, speak to an insurance broker for more information. Alternatively, you can contact Box Advisory Services to find out who our preferred insurance broker is for your situation.
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Please note that every effort has been made to ensure that the information provided in this guide is accurate. You should note, however, that the information is intended as a guide only, providing an overview of general information available to contractors and small businesses. This guide is not intended to be an exhaustive source of information and should not be seen to constitute legal or tax advice. You should, where necessary, seek your own advice for any legal or tax issues raised in your business affairs.