Professional Indemnity Insurance is an important type of cover for a business, however it is particularly relevant to those in professions which provide advice for a living. A professional can be anyone who "provides advice or services of a skillful character according to an established discipline". A claim for compensation as a result of incorrect professional advice or services, whether your business is big or small, can set back your business severely.
Defining Professional Indemnity Insurance
Professional Indemnity Insurance covers against claims for liabilities owed to a third party (typically a client of the insured) for the loss suffered by the third party arising out of the insured providing ‘professional services’. To ‘indemnify’ means to cover the insured for the liability owed to the third party for the loss suffered. Professional Indemnity Insurance therefore is a type of insurance which can protect your business, for example against claims for financial loss, or bodily/personal injury and/or property damage that arise from an act, error or omission in the performance of the professional services covered by the policy.
For example incorrect designs made by an architect, incorrect advice provided by a migration agent with respect to visa requirements, failure to detect unsafe work conditions by a work, health & safety consultant can all result in a financial loss or bodily injury to a client, and therefore result in a potential claim for compensation against the insured.
Why is Professional Indemnity Insurance Important?
On occasion it’s possible in your profession to unintentionally breach privacy or confidentiality, omit information, make an error of judgement or provide the wrong advice. A simple act, error or omission can lead to a claim against your business, therefore making it vital to protect yourself, your business, and reputation.
Professional Indemnity Insurance is important as the legal costs associated with defending any claims can be significant. Court and other legal fees to defend your business are often underestimated, and small businesses in particular can struggle to find the money to pay for this, regardless if they are found liable or not for damages. Court cases can also drag on for extended periods of time, with ongoing fees over years which can have a significant financial impact on your business.
Professional Indemnity Insurance is important as it can protect you from bearing the full cost of these claims. This can allow you to keep your business up and running as normal, without too many disruptions to your normal operations.
Who Needs Professional Indemnity Insurance?
Professionals such as lawyers, accountants, bookkeepers, architects, engineers and marketing specialists are a few of the professions where Indemnity Insurance can apply. Professions that have more hands-on jobs are less likely to need Professional Indemnity Insurance, however it can still apply in some cases. For example, agricultural consultants, event managers, life coaches and marriage celebrants.
Whatever industry you work in, as a Professional in that industry, you hold the responsibility that your advice or services is of quality. Therefore if you provide advice or services to your client which are incorrect, you could potentially be liable to pay for losses occurring as a result of this.
The Cost of Litigation
Many businesses underestimate the real cost of legal action. The cost for a defence could be around the $100,000 mark - or much more. Many businesses – especially small businesses – would struggle to fund these costs.
For example, a case handled by CGU saw a professional involved in a lawsuit that extended to $1 million in legal fees alone over several years.
His insurance premium covered all associated costs and the case was handled by the company. More importantly, he was proven not to have been negligent.
Protecting Your Professional Reputation
This illustrates an important factor in professional indemnity – the often overlooked issue of reputation defence.
There can be a tendency in such legal cases for the professional involved to try to settle the case as quickly as possible. While it may seem like the easiest solution, it’s important to consider the long-term impact of this course of action. It can be seen as an admission of guilt and have a devastating effect on your reputation.
Professional indemnity insurance enables you to pursue legal avenues to clear your name and defend your reputation – with the backing of a legal and insurance team.
When advice is your livelihood, the right professional indemnity cover can offer peace of mind, security and most importantly, protect your valuable reputation.
Regardless of your profession or the size of your business, Professional Indemnity Insurance provides businesses with the peace of mind to keep working confidently. You can find some more information about Indemnity Insurance on our website here.