Professional Indemnity insurance is one of the essential insurance policies for businesses that offer advice or provide service to clients. When a business has clients that rely on expertise and professional advice, even with measures in place to deliver high-quality service, unexpected claims can still occur.

 

What is Professional Indemnity Insurance?

 

Professional Indemnity Insurance protects your business, and its employees and directors, from claims by your clients about alleged negligence or a breach of your professional duty of care.

 

Professional Indemnity Insurance provides peace of mind for businesses as it assists with the legal costs associated with actual or alleged claims against your business for losses resulting from negligent acts or omissions from your professional service or advice.

 

Who buys Professional Indemnity?

 

Typically architects, lawyers and accountants were the most dominant professions utilising professional Indemnity insurance. However, the list of industries has grown as courts have determined several professions that give professional advice or services to clients that rely on that advice.

 

Many different professions fall into this category, so here are the typical ones we see that may require it.

 

• Accountants
• Architects
• Bookkeepers
• Civil Engineers
• Consultants
• Disability Workers
• Engineers
• Health Professionals
• IT Professionals
• Land Surveyors
• Mortgage Brokers
• Personal Trainers
• Project Managers
• Psychologists
• Real Estate Agents
• Recruitment Consultants
• Social Workers
• Tax Agents

 

Key Takeaway: if your clients pay for your knowledge and advice, you need to consider Professional Indemnity Insurance.

 

Professional Indemnity Claims Examples

 

Claims against your business can stem from both real or perceived negligence. Once a claim is lodged against you, the Professional Indemnity policy has provisions for both legal defence of the action and a compensatory payment. 

 

The insurer typically handles the claim process and will outsource the defence to specialised Professional Indemnity lawyers. Your broker should act as the liaison between you and the insurer and be able to assist you throughout the process.

 

Case Study: Claim Against Market Research Firm

 

It was alleged that Party A, the insured, had not provided a fit-for-purpose service or delivered in its entirety to Party B. Furthermore, they claimed Party A had breached the contractual terms about how the contract would be fulfilled and the methodology used to collect the data.

 

Details

 

The Insured (Party A) won a contract to provide market research on the viability of new courses to be offered before the expenses of design, offering and running those courses were finalised. The project was deadline specific to allow the claimant (Party B) to implement the offering.

 

Party A undertook the work by utilising contractors around the country to undertake pre-agreed market research with the required demographics. The contractors then filed reports with Party A. Party A completed the information and forward it to Party B.

 

The work was undertaken as expected and lodged within the deadline. Unfortunately, it came to light that one of the contractors had essentially made up the information they supplied. 

 

As the report had been submitted, it required Party B to recheck and verify all the information supplied by additional consultants.

 

As a result, Party B missed its deadline.

 

Outcome

 

The payout was reduced by Party A’s insurer, stipulating that Party B did not require the complete data from all contractors. Party A incurred a fraction of the loss Party B was seeking in damages.

 

The case took many hours of research, defence formulation and mediation by Party A’s insurer.

 

Key Takeaways:

 

• Professional Indemnity insurance covers costly legal fees that arise from claims against your business.
• Ensure you have adequate resources to fulfil the contracts you win.
• Make sure subcontractors are insured.

 

Professional Indemnity Insurance Terminology

 

Need help understanding the terminology in your Professional Indemnity Insurance?

 

Automatic Reinstatement: A policy provision states that the policy will return to its original claim limit after a claim is paid out.

 

Claims Made: Professional Indemnity is a claims-made policy. For a claim to be covered, insurance must be in place at the time of lodgement of the claim. 

 

Costs inclusive /exclusive policy limit: Costs inclusive and exclusive refer to the defence costs from a claim forming part of the limit of indemnity (costs inclusive) or are covered in excess of the policy limit.

 

Costs inclusive /exclusive for excess: This is whether or not an excess applies to defence costs.

 

Inception Date: the first day your new policy is taken out, not to be confused with a retroactive date.

 

Retroactive Date: The date with which the insurer will extend the policy coverage. It either has an actual date or classes as unlimited or inception. These terms can cover the business as far back as its foundation.

 

Continuity Date: The duration the business has been with its current insurer.

 

Professional Indemnity Insurance – Key Considerations

 

• Choose an insurance broker who you both trust and who understands your business, your exposures, and how they relate to PI insurance.
• Give a detailed description of what you do. Insurers usually specify the business activities based on the proposal form presented and will restrict cover to those activities.
• At the time of notification, PI claims are subject to the policy limits, excesses, and terms and conditions of the policy in force. It is imperative when changing insurers or reducing policy limits that there are no terms within the new policy that remove the previous cover.
• Ensure your broker substantiates the recommendations for choosing one insurer over another and why other options were discounted.
• Your cover must meet regulatory requirements for your industry.
• Check the policy wording carefully. You would be surprised how often something you would expect to be covered is not!

 

How We Can Help

 

Colne Risk Advisory specialise in Professional Indemnity Insurance. We have over a decade of working in Professional Indemnity in the Australian and UK markets as an insurer and broker.

 

If you want a quote, review, second opinion or a question answered on your policy program, please contact Robert Fleming at robert@colne.com.au, 0410 677 515 or 1300 395 755.