What is Covered/Excluded?
Professional indemnity insurance is designed to protect you against damages you become liable for from mistakes and errors of judgement, administration errors, loss or damage to clients' documents, etc, that result in loss of business and/or damage to reputation.
These may include:
- Claims involving responsibility for strict liabilities and fitness for purpose (not subject to the test for negligence)
- Fines, penalties and liquidation damages including contract penalties
- Bonding arrangement liabilities
- Claims made outside the actual period of insurance cover
- Specific vetoed activities or industries and overseas work
- Retroactive cover
- A deductible excess
- Sums over an Aggregate value if not an 'each and every' type of policy'
- Legal fees may or may not be included in the legal sum insured. If 'not' they would come out of the award before paying the claimant.
How will Professional Indemnity Insurance protect my business?
If you do make a mistake - an error of judgement, say - or there's a basic admin error which in turn leads to a dispute with a client and that client is so dissatisfied with the resulting loss of business and damage to reputation that it results in a claim for malpractice against you in court, then your insurer can help represent you.
Even if you lose, a professional indemnity policy can protect you against any damages and costs you become liable for, up to the insured level.
Most professional liability insurance policies will also cover you for the cost of repairing a mistake which, if not sorted, could result in a much larger claim.
For example, your professional indemnity insurer could underwrite the cost of sorting out a basic error at an early stage - a simple typo, say - before thousands of high-cost glossy brochures are printed out resulting in a large damages claim by the client.
Professional Indemnity pitfalls
Length of cover:
Professional liability insurance often needs to extend byond the life of a contract, so if claims are made at a later stage, you have cover in place. Policies generally relate to the policy in place when a claim is made.
This may be important if you intend retiring soon, or are winding down the business, or moving on to a new area of operation you don't currently have covered.
Limits of Indemnity
Check whether limits of indemnity relate to any one claim ie 'each and every' claim or are an "aggregate," ie for all claims.
Check whether specific higher risk activities or industries (nuclear, for example) are vetoed under the policy, and whether you are insured to work abroad, if your business is likely to take you outside the UK.
As in every other line of insurance, the excess you have to pay if you have to make a claim can vary wildly. Always read the small print before you sign on the dotted line.
If you already have professional liability cover and are moving to new insurers, make sure that the policy has "retroactive cover" built in to cover work insured under your previous policy. Often there's a delay between an event and a resulting claim, so you need to be covered both at the time of the event and when the claim is made.
This means that if you plan to cancel your policy when you wind up your business or retire you should arrange what is known as "run off" cover for a period of time afterwards.
Also, if you do want to change insurers, make sure that your new insurer will accept new claims for prior incidents.
How can I minimise claims against my business?
Make sure that any contracts drawn up clearly define your responsibilities, and that any concerns/complaints are dealt with promptly.
Keep an accurate record of all complaints and your actions to redress these.