One of the most important aspects of owning a business in making sure you have the right insurance coverage. Unfortunately, many people don’t understand the value of having a professional indemnity policy, which could cost them greatly in the form of a lawsuit or other large claim. Here is what you need to know about professional indemnity insurance in simple terms.
What is Professional Indemnity Insurance?
To put it simply, professional indemnity insurance is a type of insurance policy that protects your business in the event a client or customer deems your work or advice inadequate.
Essentially, the policy works to help you either settle the claim financially or fight it legally. Let’s look at a couple examples. Say you’re a graphic designer who creates special product packaging for a food company. Without meaning to, you accidentally copy a design from years ago. After the release of the design on a wide scale, the food company who hired you is caught in a legal battle over the copied design and has to pull all of their product from store shelves. In this case, they might sue you for negligence and your professional indemnity policy would come in handy.
Who Needs Professional Indemnity Coverage?
As you can tell, professional liability insurance is pretty important when it comes to protecting your business against the unknown. Even though you feel that you’re very good at what you do for a living, mistakes can happen to anyone and that’s when having this type of policy in your arsenal becomes important.As you can tell, professional liability insurance is pretty important when it comes to protecting your business against the unknown. Even though you feel that you’re very good at what you do for a living, mistakes can happen to anyone and that’s when having this type of policy in your arsenal becomes important.
Examples of those that should consider professional indemnity insurance include:
• All consultants and contractors who provide advice or professional service to clients;
• Anyone who offers designs to customers, such as an engineer, architect, or designer;
• Those who want to protect against a possible negligence claim in the future;
• Freelancers or other self-employed individuals who offer advice or need the policy to undertake a specific project;
• Those who are in industries that require them to carry this type of coverage such as financial service providers and medical practitioners.
This really boils down to anyone who offers a professional service, provides advice, is responsible for intellectual property, or handles sensitive client data. If your company falls into one of these categories, you need professional indemnity insurance.
Why Should You Have a Professional Indemnity Policy?
There are numerous reasons to have a professional indemnity policy, even if you don’t fall into the above industries.
Obviously, the most important is to ensure you are protected against the unthinkable. Accidents truly can and will happen at the most inopportune times and by being ready you can rest assure that you won’t take a huge financial loss when one does.
The second is that you might be required to have it to work with specific customers. In some industries, companies write this into their contracts when working with independent
contractors and consultants. If you already have a policy in place when this arises, you can rest assured that there’s nothing further for you to do to meet this requirement.
Third, certain industries are obligated to carry this type of coverage. For example, engineers, solicitors, healthcare workers, accountants, and architects are usually required by either a
governmental body in some areas or by professional organizations.
Common Mistakes When Buying Professional Indemnity Insurance?
Of course, there are mistakes you can make when buying professional indemnity insurance.Of course, there are mistakes you can make when buying professional indemnity insurance.That’s why it is so important to take your time and work with a professional broker before buying a policy.
A few of the most common problems to look out for include:
• Not Understanding Where Your Risks Lie: Businesses often buy insurance based on their perceived risks rather than their actual risk. Make sure you’re sitting down with an experienced insurance broker to help you understand your actual risks when deciding how much professional indemnity coverage to purchase and getting the right cover.
• Purchasing on Price and Not Overall Coverage: When you’ve got a tight budget, you mightbe tempted to purchase the lowest cost policy and not the one that gives you what youneed for protection.
• Not Reading the Fine Print: Every policy has unique wording and exclusions that you needto be aware of. Make sure you take the time to read the fine print to determine whatyou’re really getting out of your policy.
Professional Indemnity Case Study: Opal Tower in Sydney
To fully understand the importance of professional indemnity insurance, we need to look at a specific case study. Sydney’s Opal Tower used to be home to hundreds of residents. Now, some of the apartments sit empty due to a failure on the behalf of the construction company that built it.
The issues involving the building came to light when the thirty-six-story building was completely evacuated on Christmas Eve due to cracking in certain pre-cast concrete panels. Emergency crews determined that the building was in danger of a potential collapse and that the $128 million tower was not safe for residents to live in. Problems occurred on multiple levels and in the basement, showing that it was not just a single error or small shift that caused the damage.
After two months, a final report was issued that stated the original engineering provided by developer Ecove and builder Icon were insufficient to include the weight load on certain
pressure points in the building. In this case, the NSW government-commission report showed that numerous mistakes were made throughout the entire construction process and ultimately the damage that caused the residents to evacuate.
How does professional indemnity insurance come to play here? Where there is an allegation of design error, the engineer’s professional indemnity policy responds to the onslaught of lawsuits, other legal ramifications associated with this incident.
Conclusion
Professional indemnity insurance is a vital component in protecting your company against future liability claims. As we’ve previously stated and shown in our case example, incidents can literally happen at any time, even years after you’ve completed a project. Having adequate coverage ahead of time can save your business a ton of headache, hassle, and legal fees associated with a claim.
Are you ready to learn more about professional liability insurance? At CMX Insurance Solutions, we specialise in Professional Indemnity insurance. Please contact us today to schedule your no-obligation coverage review.