What Is Professional Indemnity Insurance
Let’s start with, what is professional indemnity insurance? And we call it PI.
So professional indemnity policy provides cover for claims made against you for X errors or omissions during the provision of professional services.
The policy provides you with defence costs and will also pay for damages that are awarded. So in very simple terms, if you make a design error, give the wrong advice, you stuff up, someone suffers a loss.
They can’t recover those costs from you and professional indemnity policy will help you defend that matter and pay for damages. So who needs professional indemnity insurance? Anyone that provides professional advisable service.
So that can be from lawyers, accountants, doctors, engineers, financial service advisers to IT professionals, real estate agents, and yoga instructors.
For some professions it is a statutory requirement to hold professional indemnity insurance. For some people it’s a contractual requirement. But regardless of that, it makes good business sense to have a professional indemnity policy.
Why Do You Need Professional Indemnity Insurance?
So why do you need it? For no other reason than to protect your personal and business assets. Law suites are expensive and can take years to resolve.
Unless you have deep pockets, a professional indemnity claim will drain your business of cash, your personal finances and in turn affect your livelihood.
That’s just legal cost. If it is found that you were negligent, you’ll also have to pay damages and third-party legal costs. Aside from the cost, you also need a lawyer that specialises in insurance law and professional indemnity claims.
The lawyer who handled your divorce does not specialise in insurance law or they’re unlikely to specialise in insurance law.
The lawyer that got you DA approval for your latest property development is unlikely to specialise in insurance law.
You need to get the right advice from the right type of lawyer. Your professional indemnity insurer will have a pen of lawyers that specialise in insurance law and professional indemnity claims. In the event of a claim, they will appoint one for you.
The other benefit is the insurer negotiates special rights for these lawyers, so you’ll be paying less for what you would otherwise pay if you used your own lawyer. Okay. Moving on, sometimes a professional indemnity claim doesn’t come in the form of a law suit. You may have breached industry professional standards or you may be investigated by a regulatory body.
A professional indemnity policy will also help with the cost of legal representation for these matters. Depending on the level of cover, your policy may also provide cover for fines and penalties, theft, contractual liability, public relations and a few other bells and whistles.
You might be thinking to yourself, “I’m great at what I do. I don’t make mistakes. I don’t need a professional indemnity policy,” but here are a few things for you to think about. Do you have staff? Are they as competent as you are? As a business owner, you are liable for the services that they provide.
The other thing to think about is, sometimes you haven’t done anything wrong. Sometimes it’s alleged that you’ve done something wrong. Sometimes fictitious claims are made against you. You will still need a lawyer to defend these matters.
Sometimes when you haven’t done anything wrong, claims are settled on a commercial basis with no liability admitted. Have you got enough resources to cover claims like that? To wrap it up, not all professional indemnity policies are the same so make sure you take the time, get the right advice and the right policy to suit your business.