Professional indemnity – What are you insured for?
Professional Indemnity; it is an insurance which protects businesses who may, owing to a problem with their work, cause their client a financial loss. Historically it was purchased by architects, engineers and lawyers as well as other traditionally professional recognised businesses. However, the list of businesses which have a need for the insurance and /or are considered ‘professional’ is growing year by year and now includes Realtors, IT Professionals, Coaches and even in some states tradesmen.
If you were to ask most holders of Professional Indemnity Insurance what their policy covers them for and what would trigger the policy into action most would have a glazed look come across their eyes. In this article I want to breakdown the insuring clause, arguably the most important component of a Professional Indemnity Policy, and outline the three differing types of cover which insurers base their policies on:
Negligence: A negligence based insuring clause requires that there have been a negligent act resulting in a claim for the policy to react. These types of wordings have their roots from the original styles of Professional Indemnity policies but considering how statements of claim are now worded and the scope of activities which can be involved within a job it can leave you uninsured when you think you are insured if negligence did not play a part within their compliant. For example, misrepresentation leading to a client entering a contract wouldn’t be covered under their wording. That would remove a lot of cover for industries which sell their advice i.e. realtors, financial planners and insurance brokers…
If you are offered this type of policy wording, then you should be considering other options.
Breach of Professional Duty of Care: This is a more expansive wording than negligence only and is often seen offered to those industries which are prone to having high amounts of claims. The policy, as it suggests, covers an insured breaching their professional duty of care to their client.
A prior article of ours outlined this in more depth (see below) but essentially your duty of care is the requirement to provide proper skill and care in the undertaking of your activities in line with that of your industry.
The main consideration with this type of policy is whether the wording is suitable for the activities which one may undertake and whether all those activities which cover is required for would fall under ‘professional’ or require the undertaking by someone ‘professionally qualified’ i.e. social media posting’s within an architects practise?
Civil Liability: Arguably the most common type of policy available now within Australian and most industries and businesses will now be able to access a civil liability policy wording. Simply, this type of policy provides coverage against all civil liabilities (unless specifically excluded) which would stem from the undertaking of the business activities.
It is a better wording than the negligence as the insured doesn’t have to demonstrate that there has been a negligent act which has resulted within the claim (covered as negligence is a civil liability) and broader than the breach of duty of care as it is not required to detail where there has been a breach of the professional duty of care owed.