Professional indemnity insurance explained
- notes explaining some of the elements of professional indemnity insurance
Warning: The details included here have been gained from personal experience, and the information is provided only as a guide and background information. Advice should be taken from professional advisors and professional indemnity insurance providers before deciding upon the required course of action. This is also important as risks and professional indemnity insurance cover provided will also vary according to the different areas of the world.
While there are many opportunities for undertaking contract work, or for setting up a small business, there are also risks. One is associated with indemnity. While every precaution and care can be taken to prevent problems, there is a small but finite risk of clients taking legal action. Even the most respectable companies can find themselves in dispute with a client over a mistake. This can have disastrous consequences for a small company or business and a as result it is worth considering the protection offered by professional indemnity insurance cover.
The insurance can be taken out to meet a variety of requirements. Those operating on their own may take out what could be termed contractor professional indemnity insurance, and other companies with more staff may take out professional indemnity insurance cover for the company as a whole. The cover can be tailored to suit the needs to the company or individual.
Possible causes of litigation
Professional indemnity insurance cover can be required to protect against a number of occurrences. These can occur as a result of a variety of issues, but generally they fall into the following major categories
- Negligence: Despite the best efforts of an individual or company, errors can occur and the responsibility for these can fall on the individual or company who has made the error.
- Intellectual property infringement: Professional indemnity insurance cover can be used to protect against the unintentional infringement of copyright, trademarks, broadcasting rights or general intellectual property owners.
- Loss of documents and data: One important area between a company and a client is that of protection of data and documents. Sometimes non-disclosure agreements may be signed emphasising the importance of the data. Occasionally data may be lost or unintentionally passed on and under these circumstances professional indemnity insurance cover is required as protection.
- Dishonesty: Any company employing people is open to their dishonesty. Although comparatively rare, its results can be devastating. The theft could include money hardware or data belonging to clients. Again the professional indemnity insurance cover can be used to protect against this.
These categories cover a number of the areas that professional indemnity insurance cover can be used to provide protection.
Benefits of professional indemnity insurance cover
The actual risks that will be faced by any company or individual will depend upon the exact nature of the business. The professional indemnity insurance policy can provide cover in a number of different areas according to the policy:
- The professional indemnity insurance can provide cover against the effects of a mistake being made in any professional services being provided. If any dispute cannot be resolved satisfactorily and is taken to court then the insurance may provide legal cover, and even if the court case is lost then it may provide cover for the damages.
- The indemnity insurance may cover the cost of fixing any mistakes made and therefore avoid a larger claim being made.
- the professional indemnity insurance may also cover against the loss or damage to any clients' documents. It may also provide cover in the even or an employee being involved in the theft of any of the client's intellectual property or money.
it is necessary to check the exact cover that any professional indemnity insurance policy provides as they vary considerably from one policy to the next and one insurer to the next.
It is also very important to check the level of cover provided. Professional indemnity insurance policies have a limit of liability and this should be checked to ensure that it is sufficient.
A further point to note is that it is worth considering taking out retroactive cover for work that has already been completed before the policy commences. As problems can take some time to come to light, this additional precaution can provide additional essential cover.
By Ian Poole
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