Why you need Professional Indemnity
If you provide a professional service, there are many areas where you may be exposed to liability for an economic loss as a result of an error or omission by you or one of your employees. These liability challenges and threats have increased due to a demand of accountability on experts giving advice, an increasingly more litigious society, increased competition in key product and service markets and an increasing customer expectation.
These threats and challenges are made worse with anincreased innovation and change in many professions, outsourcing of services and an ever increasing consumer protection legislation.
Who does it affect?
The definition of 'professional' has broadened in recent years. Due to this, professional indemnity insurance is now held by workers across a wide range of industries. Any professional person providing services such as advice, is regarded by their client as an expert and is therefore open to a claim being made against them should their advice be wrong.
Professional liability insurance was once associated mainly with such groups as accountants, solicitors, medical workers and engineers. Currently however, it provides protection for advice and treatment provided by people in many industries, including architects and designers, education workers, real estate agents, health workers and consultants.
Although generally a voluntary form of insurance, certain professionals, including insurance brokers, legal professionals, medical practitioners and some accountants, are required to hold professional liability insurance. Professional contractors often need to hold professional indemnity insurance if working with government bodies, local authorities or private consulting firms.
Do Professional Indemnity policies vary?
The professional indemnity policies and conditions relevant to you will vary widely depending on your industry, with specific policies being required for occupations such as Accounting, Financial Planning and Insurance Broking.
Then there are those that call themselves “Civil Liability” or “Act, error or omission” Wordings which can appear at the outset to be broad cover, but may include words such as “by negligence” which reduces the cover significantly. Or there are a myriad of exclusions or conditions that can reduce the cover in specific areas.
However they also have common features such as being called “claims made” covers. This means you claim from the policy currently in force when you are first made aware that someone is going to be taking action against you, even though the work performed for that client may have occurred over a long period some years before. This work has also to be performed after the Retroactive date given in the policy.
Why is it useful?
Losing a claim made against you can result in enormous costs and expenses. Some claims take more than five years to settle, leaving a large bill for court costs and legal expenses. Even when successful, defending a claim can be costly.
Apart from this, if you choose not to have cover, can your business afford to absorb significant legal costs just to defend a matter, let alone having to settle damages for which you are liable? Then there is the possibility of being personally liable as a director if you have failed in your duty of care to protect the business with appropriate risk management. In our experience, it has been liability claims or the lack of business interruption cover (following material damage losses) that mainly cause businesses to fail following an insurable claim. It could mean losing your home and other savings and assets if you choose to be uninsured at the time of making a claim. Let alone the livelihood of your staff, the damage to your reputation and the difficulties in ever starting up a new business again.
How much will I need?
Unfortunately, there is no exact science or formula when calculating exactly how much cover you need. There are factors that depend on Insurers capabilities and not just envisaging a worst case scenario. Some insurers will include the legal costs within the limit of liability, while others keep it separate. Some insurer’s capacity is limited to only $10,000,000 but it is possible to buy excess layers that will sit above such limits.
As an Insured, it depends on the type of occupation you perform, the size of your clients, the nature of the advice given. You also have to factor in that it can take many years for claims to be settled and when they are, it will be at that time period’s costs, not at the time the loss occurred.
There is no doubt that any Professional person should have the protection of a Professional Indemnity policy. Being in business, you can never assume you will never be sued for a mistake or omission, let alone just defending an allegation.
Consumers are more aware of the law, and there is even greater statutory legislation today which is continually being revised or added to.
You owe it to your clients, your family, your business and all its employees to protect them because mistakes do happen. This is one you can avoid by taking Professional Indemnity cover.
By Robert Cooper,