- Professional indemnity (PI) insurance is vital for anyone who provides professional services or advice to clients in exchange for a fee.
- PI is a wide-ranging insurance claim solution that protects individuals against legal costs and claims for damages due to an error or act of omission throughout the course of business. Basically, it is cover that protects you and your business if you “fail to present work to a professional standard"
- PI is mandatory in some industries, such as medicine, accounting, law, engineering, real estate, photography, building, marketing, architecture or finance.
- Check the ‘sunset clause’ in your policy – this part of the contract states a specified period of time in which a claim can be lodged after a policy has expired.
Have you ever questioned whether you really need PI cover? Unless you have endless disposable income or you can predict the future, then this cover is vital should you or your employees provide professional advice to your customers or clients.
In our blame-culture society, professional indemnity insurance becomes a crucial component in helping protect consultants, directors, or owners of a business against claims of professional misconduct, malpractice, errors or omissions, and breach of contract.
What could lead to a claim?
Without PI cover, such claims can end up having devastating affects on your business or even cripple it altogether. It not only puts your business at risk either. Your personal assets, such as your house, can be affected, as well as the people you work with, including partners, employees and volunteers.
The greatest value in a PI policy is the cover against legal defence costs.
Even if you pride yourself on meticulous work, there's a chance you could still be sued unfairly by a client who is merely dissatisfied. Even though they might have no valid claim, the allegation could still involve you in substantial legal costs and non-productive time.
Whether you're found liable or not, if a claim is brought against you, a PI policy will be able to pay for all of your legal costs to defend that action.
A professional indemnity policy can save you from personal bankruptcy or permanent closure of your business.
A few things to consider...
What does “claims-made” mean (aka a ‘sunset clause’)?
One particular topic that most policyholders may not be aware of is something called a “sunset clause.” A sunset clause is part of your insurance policy that is related to the time limit in which your client is able to make a claim and be considered for coverage.
For example, let’s say your professional indemnity policy was effective 1st Aug 2020 and expires 1st Aug 2021, and has a 2year sunset clause. So, if a latent “defect” on your work performed sometime between 1st Aug 2020 to 1st Aug 2021 is not discovered until 2nd Aug 2023 (2 years and 1 day after expiration) or later, then your policy won’t cover you.
What's the difference between Public Liability and Professional Indemnity?
Public liability insurance covers compensation claims if you’re sued by a member of the public for injury or damage, while professional indemnity insurance covers compensation claims if you’re sued by a client for a mistake that you make in your work.
However, neither policy will provide cover for intentional or dishonest acts.
Professional Indemnity in practice...
Example: A landscape architecture firm is sued by their client for the costs of rectifying an extension built from a flawed design. The PI policy reacts and the insurer pays out $50,000.
Example: A customer purchases the plants you have recommended and later discovers that they have an aggressive root system and are destroying underground pipes and the foundations. There would likely be a large claim for the rectification work and replacement of the plants for which you would be held responsible.
Similarly, if a landscaper followed your design plans and it is later discovered that insufficient drainage was incorporated into the plans, you as the designer would be held responsible for the customer’s flooded premises; not the landscaper.
Example: A construction company discovers a fault in the plans, and the building then needs to be demolished and rebuilt from scratch. The property developer sues for $500,000 in damages due to loss of income and value of business. The PI policy reacts and pays out the $500k in full.
Mistakes can (and do) happen in every line of business. Professional indemnity insurance means peace of mind for you and your clients if things don't go exactly to plan. You work hard to provide the best service you can and that’s what your clients expect, so don't let a silly mistake define your business. Make sure you have the right cover in place so you can keep moving and focus on doing what you do best.