Guide to Business Insurance (Series) – Professional Indemnity Insurance

Professional Indemnity Insurance (PI Insurance) is absolutely vital for those providing advice, services or designs to their clients. The policy can cover compensation claims if a professional is sued by a client for various scenarios, including:

• Professional negligence (i.e. making a mistake as a professional, failing to perform responsibilities to the required standard, etc.)
• Loss of documents or data
• Unintentional breach of copyright and/or confidentiality
• Defamation (damaging reputation) and libel (think publishing false statements about a client)
• Loss of goods or money

Do I actually need PI Insurance?

Do you give advice or provide a professional service? Then it’s vital you have this policy if prevention against potential significant financial losses is important to you. Whilst most professionals have a good working relationship with their clients, a mistake in a project can change the dynamics in an instant.

PI Insurance is not required by law however, some regulating bodies stipulate in their rules that it’s compulsory. Additionally, if your business is looking to win contracts, then most clients will only do business with you if you are adequately protected. This policy doesn’t just give you peace of mind, but also your client’s too.

Make sure you check your policy wording

There are three common situations where a claim might not be paid. The two most obvious are:

• Where your claim is less than your excess amount
• Where a claim has already been previously notified under another policy

The one situation which is less obvious is ‘previous work’, in other words, this means any work you have carried out prior to your policy starting, won’t be covered and any claim will be rejected. To cover work started prior to your policy start date, you will usually need to purchase this as an optional extra and we believe it is important you check your policy wording before purchasing.

Examples of PI Insurance in action

Claims vary from industry to industry however, it’s important to remember that all professionals have a duty of care to their clients that they work with. It’s a breach of this duty that usually results in a claim.

• A member of your team accidentally reveals sensitive data about your client by forwarding an email to the wrong person.
• You’re a website designer and you use stock photography on a client’s website. You don’t have permission to use the stock photography and your client is sued.

In all of the examples above the client has a right to sue based on you breaching your duty of care to them. In theory, your insurer pays for the legal and compensation costs incurred.

Now I’m sure we’ve got you thinking, so without further ado…