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What is Professional Indemnity Insurance?
Professional indemnity insurance is a form of business insurance designed to provide your company with financial protection from legal action taken against you in the instance that there is a breach of professional duty. It safeguards your business from claims that clients make when they suffer financial loss due to your negligence and poor service delivery. Essentially, professional indemnity insurance covers your business for errors made in the work or services you have provided to your client.
How is it different to public liability insurance?
Professional indemnity insurance covers you from claims made by clients towards your professional services such as unprofessional advice and recommendations, errors or omissions, breaches of confidentiality, delivering sub-standard work, loss of documents or not meeting an agreed requirement.Public liability insurance on the other hand, covers your business if it causes damages to property or injury to the public.Professional indemnity insurance is not required by all businesses, but given the diversity of risks it covers, it is compulsory for some professions in Australia to be allowed to legally operate.
What Types of Professions Need Professional Indemnity Insurance?
The professions where professional indemnity insurance is mandatory are professions that are considered high-risk, and where any errors or oversights can have considerable financial consequences to the client.Some of these professions include, but are definitely not limited to:
- Accountants
- Legal Practitioners
- Real Estate
- Healthcare Professionals
- Engineers
- Marketing Consultants
- IT Consultants
- Bookkeepers
- Architects
Just by this small sample you can see that all these professions provide a service where they make recommendations and business decisions on behalf of their clients. In other words, their clients pay them to have their best interests in mind and are expected to provide a flawless service. This leaves the businesses open to a range of risks resulting in the client suffering significant losses.
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Risks of Not Having Professional Indemnity Insurance
Running any business inherently involves some level of risk, regardless of how careful you are. Despite having all the good intentions and ethical practices in place, human error is an unavoidable biproduct of every profession. So even if professional indemnity insurance isn’t compulsory for your business, it should still be considered.
Not all claims are considered equal
Even if you believe that you have provided exemplary service and advice to a client, that doesn’t necessarily mean they can’t, or won’t still file a professional indemnity case under false allegations. This can put honest businesses in a position where their reputation can suffer irreparable damage, so it’s important to have a cover that will give you the financial security to legally defend your professional reputation.
What Isn’t Covered by Professional Indemnity Insurance
Having a Professional Indemnity policy in place won’t cover you for everything, though, so it’s important to find out what your policy’s limitations are. Typically, professional indemnity policies won’t cover you for:
- Any claims or incidents known prior to the insurance period.
- Fraud and Dishonesty
- Intentional damage
- Accidental injury
- Fines, penalties, refunds of professional fees
- Property damage.
Some of these claims would be covered under different insurance policies such as public liability insurance.
Examples of Professional Indemnity Insurance and Claims
Let’s say that your company is in charge of a client’s confidential information and one of your employees, who is in charge of said client’s account, accidentally emails that personal information to the wrong person and it ends up on social media. The client could now launch a defamation lawsuit against your company that could cost you tens of thousands of dollars in legal fees, not to mention compensation for damages to the client. A professional indemnity insurance policy that covers claims of defamation would be invaluable in this unfortunate situation.Perhaps your construction company has signed a contract to have a project completed by a certain date. However, the project is still unfinished by the time the agreed completion date arrives. This could be grounds for an indemnity claim due to a breach of contract.Or if you run a fitness company where you hire personal trainers to provide one-on-one training service to your customers. A customer suffers a serious injury under the supervision of one of your personal trainers and now you are looking at an injury claim as a result of negligence or bad advice.There are so many ways that a professional indemnity claim can seriously debilitate or destroy your business. Unless you have more cash than you know what to do with, or you’re a lawyer, then professional indemnity insurance is an absolute necessity.
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Do I Need Professional Indemnity Insurance?
Regardless of the size of your business, if you provide advice and a professional service, professional indemnity insurance provides you with the peace of mind that will allow you to focus on the important things, such as kicking your business goals and continually improving your services. Speak to one of our friendly insurance brokers in Perth for a customised professional indemnity plan perfectly suited for your business.
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