Professional indemnity insurance pays compensation and legal fees in respect of financial or professional losses to third parties as a result of negligence in a service or advice you have provided.
This cover is important for companies which give advice or provide a professional service or design to clients or those who handle intellectual property or client data.
Professional indemnity can be provided as a standalone policy or may also be included as a liability package or within your office package insurance.
No matter how big, small or experienced your business everyone makes mistakes and without professional indemnity insurance you and your business are open to financial exposure
So what do you need to know about Professional indemnity insurance and how can you determine if you have a need for it?
Who needs professional indemnity insurance?
If you or your business provide advice, design or services to your customers it’s likely that you may require professional indemnity insurance.
This may range from but not exclusive to consultation, engineering, professional services, teaching, recruitment, fitness trainers, construction, surveying and much more.
Is professional indemnity insurance mandatory?
Whilst this is not a mandatory insurance by law many industry bodies and regulators do require their members to carry this insurance. It may also be required by contract of your clients.
What is covered?
Professional indemnity insurance provides cover for legal costs and expenses in defending a claim if you or your business provide inadequate or incorrect advice, services or design that results in a loss to your client. It also covers the compensation awarded to third parties.
It provides cover for things such as professional negligence, loss of data or documents, unintentional breaches in copyright, loss of goods and money, deformation and libel and unintentional breaches in confidentiality.
What limits do I need?
Setting a limit of indemnity is personal to your business needs and will take into account the sizes of contracts you handle.
To calculate your indemnity limit you should think of the worst case scenario and what the financial implications would be to put this right. This should include legal fees and losses that would be incurred by your clients.
If professional indemnity insurance is required by contract of by a regulatory body they may also insist on a certain indemnity limit as a minimum which should also be considered.
What if I take out insurance or don’t renew my policy?
Professional indemnity insurance is commonly issued on a claims made basis. This means that the claim both occurs and is reported during the period of insurance and after any retroactive dates if applicable.
Simply put if you do not hold valid insurance at the time a claim is reported then you and your business are financially at risk of the costs.
What is a retroactive date?
A retroactive date is very important in a professional indemnity policy and represents the date on which cover was first incepted.
This may differ from the inception date on your policy if you have held insurance for many years however the same retroactive date will carry forward each year.
If you change insurers its very important that you or your brokers advise the insurer of the retroactive date in order to ensure continuous cover.
Without a noted retroactive date cover is only provided from the inception date of that policy and any liability arising from previous work will not be covered.