A guide to professional indemnity insurance

team meeting

If you are a sole trader, have your own business or use sub-contractors, chances are you are familiar with the likes of both public and employers’ liability insurance.

However, you may not be as familiar with professional indemnity insurance, otherwise known as PI insurance.

Professional indemnity insurance is a constituent of liability insurance, but it is more specific to those who sell a professional service or those who give professional advice. In these circumstances if your client suffers a financial loss as a direct result of your work for them you could face a claim.

From architects to accountants, estate agents to IT professionals if your business or career fits in to the above description you may want to cover yourself in the event of litigation being brought against you.

What does PI insurance cover?

There are a number of things covered under professional indemnity insurance including bad advice, service, advice, designs and even specifications that all cause your client a financial loss. Notably, claims are commonly made for the following reasons:

  • Negligence or breach of professional duty
  • Negligent misstatement or negligent misrepresentation
  • Defamation, libel or slander
  • Infringement of any intellectual property rights, other than patents and trade secrets
  • Dishonest or fraudulent acts or omissions of any present or former employee (subject to exclusions)
  • Breach of any contractual or common law obligation of confidentiality, including invasion of privacy
  • Inadvertent transmission of a virus
  • Any other civil liability
  • Cover for those within the IT industry will also be covered for:
  • Breach of technology contract
  • Breach of system security

What are the limits?

When the professional intercepts the policy there will be a pre-determined limit of indemnity depending on the needs of the professional. This can range from tens of thousands to millions.

The insurer will indemnify the professional for the pre-determined indemnity limit for claims arising from the above points.

In some cases, defence costs will be indemnified in addition to the indemnity limit, for example:

  • Legal representation expenses
  • Data protection expenses

What to do before taking out a PI policy?

Before incepting a PI policy, professionals may wish to consider the following:

  • Is there an indemnity limit required by law in the particular industry?
  • Is there an indemnity limit required by the industry’s regulatory body?
  • I there a contractual indemnity limit required?
  • Has your client requested that you have a certain indemnity limit?
  • Are you at risk of having one or multiple claims made against you?

What are the claim limits?

If you make the decision to take out a policy you can choose from two policy alternatives. You can either opt for an ‘Any One Claim’ or an ‘Aggregate’ policy.

1) Any One Claim

This basis refers to the entitlement that every claim made throughout the life of the policy is eligible to be covered for the full indemnity limit

What this means is that if you have an indemnity limit of £2 million, each claim made will be covered for the equivalent.

As long as each individual claim made throughout the life of the policy remains within the original limit of indemnity then it is unlikely that any additional charges will incur.

Generally an ‘Any One Claim’ policy is more expensive than an Aggregate policy.

2) Aggregate

Unlike the ‘Any One Claim’ policy, an Aggregate policy will not pay out the maximum limit of indemnity for each claim made during the life of the policy.

An unlimited amount of claims can be made during the life of the policy; but the maximum limit of indemnity will be paid only for the combination of all claims made.

For example, if you have an indemnity limit of £2 million, and you make four claims during the life of your policy; each equating to £500,000, this does not exceed your indemnity limit.

However, if you you were to make two claims at £1.5 million each, there would be a £1 million shortfall that would not be covered by the limit of indemnity.

If required, you can also include ‘Reinstatement’ to the indemnity limit whereby the original limit will be reinstated following a claim. This can only be done once throughout the life of the policy.

Need a quote?

Just fill out the quick quote form on our professional indemnity insurance page, or give our UK based sales team a call on 08081686868.