We’re not talking about contents cover for your office furniture here, although that’s probably a good idea. Instead, we’re going to take a look at professional indemnity insurance (aka ‘PI’) – insurance that helps if a client accuses you of making a mistake or failing to do your work properly.
How vulnerable are you to legal action
If you’re a self-employed knowledge or trades worker providing services or advice to others, you run the risk of being sued. This can happen if a client accuses you of making a mistake, overlooking an important piece of information, getting your facts wrong or just being a below par at what you do, leading to financial losses. If a client decides to take legal action against you to recover their losses, you’ll be pleased to have professional indemnity insurance.
Here are the main reasons a client might have a go at you legally:
- Failing to provide the agreed services
- Being negligent in carrying out professional services
- Providing incomplete, incorrect or badly-done work
- Making mistakes or forgetting to include something
- Providing a very low standard of customer service
Protecting your business from legal action
When a client makes a claim against you, it costs time and money to defend yourself – even if you know the claim hasn’t got a leg to stand on. Professional indemnity insurance is designed to protect your business by covering your defence costs and compensation that could be payable to the client, if their legal action succeeds.
Typically, professional indemnity insurance will cover:
- Damages and claimant costs awarded against your business
- Legal and defence costs
- Claims investigation costs
- Costs related to inquiry attendance
- Public relations costs
But it won’t cover:
- Damage you did intentionally
- Fraud and dishonesty
- Bodily injury and property damage
- Data breaches
Who needs professional indemnity insurance?
You could argue that anyone who provides advice or services for money needs professional indemnity insurance, but for many businesses it’s a choice, rather than a hard-and-fast requirement. However, there could be circumstances where you need to have professional indemnity insurance to gain a contract with a specific client. So for some jobs, having the right level of professional indemnity insurance could be a non-negotiable requirement. For example, if you want to work for the government, having professional indemnity insurance is a condition of contract.
As a rule, these roles and business types benefit from having professional indemnity insurance:
- Business consultant
- Construction consultant
- Real estate agent
- Advertising or marketing consultant
- Interior designer
- Graphic designer
- Advertising agency
- Market research company
- IT consultant
- Other trades involved in construction
What about self-employed medical professionals?
Medical people need medical indemnity insurance, which protects health professionals in situations where services provided could cause illness, injury, financial loss, or any other form of harm through negligence or omission of services. There are a number of insurers who specialise in this sub-type of indemnity insurance.
What about data breaches?
If you’re worried about the risks of data compromise, you need cyber insurance, which can help you recover from a cyber liability, such as a ransomware attack, computer virus, malware infection, DoS (denial of service) attack, loss of data or a privacy breach.
What does professional indemnity insurance cost?
The cost of professional indemnity insurance depends on the size and nature of your business. It’s a good idea to get quotes from a few insurers. Alternatively, you could go to an insurance broker and let them gather some quotes for you.
Scenarios where professional indemnity insurance comes to the rescue:
- An acoustic consultant was involved in upgrading a historic town hall, so that it could be used for live music concerts and theatre. After the project was complete, it was determined that the hall’s acoustics were worse than before, not better. Concert goers towards the back of the hall couldn’t hear what actors on the stage were saying. The acoustic consultant was sued for negligence. Professional indemnity insurance covered the cost of alterations to fix the hall’s terrible acoustics.
- An interior design consultant was tasked with ordering custom furniture for a client’s boardroom. When the furniture arrived, it didn’t fit the space. The furniture couldn’t be returned, because it was custom-made. The consultant was sued for failure to meet the requirements of the brief. Insurance cover reimbursed the client for the ill-fitting furniture.
- An advertising agency printed promotional calendars for a client. Unfortunately, the calendars had two Junes and no July. The reprinting costs of over $12,000 were covered by the agency’s professional indemnity insurance.