If you’re trying to find an answer to the question 'what is professional indemnity insurance?' it's likely you've come across – and had to decipher – proper grown-up words like ‘liability’, 'negligence', and ‘duty of care’.
It can be a bit like negotiating a minefield. Sorry about that. Then again, so can trying to deal with a claim yourself, without the backup professional indemnity (PI) insurance provides.
But the real trick to pinning down just what professional indemnity is and does lies in unpicking the name.
So, just what is PI insurance?
Let's start with the 'professional' part. That's what you are, right? Someone who takes their job seriously and offers a service, gives advice, or produces designs. Someone who's skilled in their particular field.
Then there's the 'liability' bit. That basically means the responsibility you bear for the work you do, and for anything that goes wrong. It takes a little explaining, which is why we've got another post on liability.
Finally, there's the fact it's 'insurance', which is more straightforward. You usually insure yourself against the risk of something bad or unexpected happening, which could lead to you taking a personal financial hit.
So, putting all that together, you get a type of insurance that protects you against the risk of someone saying your work wasn't of the anticipated professional standard. Also of expecting you to compensate them for it.
So far so good. But how does it all work?
How professional indemnity insurance works
A lot of things in business aren't as straightforward as you might hope. So even if you come away from a job or a contract thinking everything's hunky-dory, your client might take a different view.
On top of that, no one's perfect, so you could make a genuine mistake. An off-day, a lapse of concentration, and the pressure of deadlines or taking on too much can cause people to slip up in ways they normally wouldn't.
Thankfully, if what you did or didn't do means your client sues for their alleged financial losses, that's when your professional indemnity insurance kicks in. It pays the costs of defending you, as well as any damages awarded – up to the level of cover provided by your policy, of course.
Deciding just how much professional indemnity insurance you need takes some careful consideration in itself.
And it's not just alleged negligence that PI insurance can protect you against. Depending on the wording, good policies can also take care of claims arising from:
- Infringement of intellectual property
- Loss of documents or data
- Negligent misstatement or misrepresentation
- The dishonesty of your employees
- Computer virus transmission
- Breach of confidentiality.
Won't my terms and conditions protect me?
Terms and conditions are a good thing to write into your contracts. They offer at least a certain amount of protection from finger-pointing clients.
But even the most robust Ts & Cs in the world won't stop someone making a claim against you if they think there's a case for you to answer. They'll sue you regardless.
And it doesn't matter whether you think they've got a leg to stand on either. If a claim's made, you'll have to do something about it - because simply hoping it'll go away isn't an option. And we all know how cheap solicitors are.
The good news is that professional indemnity insurance covers all your defence and legal costs whatever the likelihood or otherwise of a claim succeeding. That has the benefit of leaving you free to keep running your business in the meantime.
Other things to know about professional indemnity insurance
Professional indemnity insurance provides cover for genuine mistakes and oversights. It's not a get-out-of-jail-free card and insurers tend to draw the line at paying claims caused by recklessness or promising something you can’t deliver. You still have to act responsibly.
Another important aspect of PI is that it's what's known as 'claims made' insurance. That means it needs to be in place both at the time the work in question is carried out and when a claim rolls in.
That's significant because mistakes can take a long time to come out of the woodwork or be noticed, especially in professions like architecture and surveying. So, if you've cancelled your policy in-between times, you won't be covered.
The same applies if you've reduced your level of cover. If a claim comes in for a job you did some time ago, you'll only be covered up to the amount currently specified on your policy.
Call it what you like - professional liability insurance, PI insurance, PII - there's no denying that professional indemnity has an important role to play in safeguarding your business.
One of the best things about your policy is that it's always looking out for you, regardless of whether you're at fault or not. In a sense, it does all the dirty work and leaves you to concentrate on other things. Like resting easy at night.
You get the problem resolved and, with any luck, get to keep your client too. Not forgetting that having PI gives you the kind of professional edge that can make you an attractive prospect in the first place.
Many clients and contracts demand a certain level of professional indemnity cover in fact. As do the membership criteria for some professional bodies, including those for accountants and architects.
It's a sign of just how seriously PI is taken within the business community.
Click through for more information on professional indemnity insurance. Or you can call the team on 0345 222 5391.
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