What is Professional Indemnity and do you need it

PROFESSIONAL INDEMNITY

What is it?

A professional indemnity policy provides protection against:

• Neglect
• Error
• Omission

It is an insurance policy that provides an indemnity to the policyholder in the event of a breach of their professional duty – a failure to achieve the standard of skill and care expected from a reasonably competent member of the Insured’s profession.

The cover provided is an indemnity against a legal liability to pay damages and costs that result from the act, error or omission.

Liability occurs when

1. Advice is given or a service is performed
2. The standard of the advice/service falls below the standard expected of a reasonable member of the profession
3. The client (or third party who the Insured knows will rely upon the advice/service) suffers a loss as a result of the advice being implemented or the service being performed
4. A duty of care is owed to the claimant
5. The loss is directly attributable to the “incorrect” advice or service.

Who needs it?

Anyone who is engaged in providing professional advice, whether a fee is charged or not, could face a claim for professional negligence. In many cases, a professional body will have a specific requirement that its members maintain professional indemnity to a specified minimum level. The need for professional indemnity cover amongst professions such as Solicitors, Accountants, Surveyors, Insurance Brokers and Architects is well published. Less well known is the range of businesses for whom the provision of professional advice is a peripheral part of what they do, but still gives rise to a potentially significant risk of legal liability.

Less obvious professional indemnity exposures might be:

• Estate agents
• Motor Traders
• Engineers
• Auctioneers
• Quantity surveyors
• Loss adjusters
• Charities
• Interior designers
• Landscape architects
• Property managers
• Building service engineers
• Marketing consultants
• Construction companies
• Computer consultants
• Management consultants
• IT consultants
• Recruitment consultants

One fact that must always be remembered is that the level of fees charged in no way limits the potential liability resulting from proven negligence.

How does the policy operate?

Professional indemnity insurance is written on a ‘claims made’ basis. Cover is provided against claims which are first made against the policyholder within the period of insurance, or for circumstances of which the policyholder first became aware during the period of insurance.

There are two basic forms of cover:

A ‘negligence’ wording: this is a narrower form of cover, providing indemnity against liability arising from any act, error or omission on the part of the policyholder.

A ‘civil liability’ wording: this is a much broader cover that includes negligence, breach of contract, breach of statutory duty, breach of intellectual property, defamation, breach of fiduciary duty. The policy will contain a number of specific exclusions designed to avoid any overlap with other ‘liability’ covers such as public liability and employer’s liability wordings.

In either case, the limit of indemnity can be ‘any one claim’ or ‘in the aggregate’. The latter is more limited, but may have provision for reinstatement of the limit.

Policy extensions available:

• Loss of Documents (cost of replacing or restoring documents the property of the Insured)
• Dishonesty of employees (covers the Insured against liability incurred as a result of dishonest or fraudulent acts by employees e.g. involving client money)
• Libel and Slander (For negligence policies)
• Intellectual Property (For negligence policies)
• Mitigation Costs - costs incurred by the Insured to reduce their exposure to an actual or potential claim e.g. a building contractor carrying out additional work to compensate for a design fault.
• Acquisitions (not USA)

Typical exclusions :

• Bodily injury and property damage (normally picked up by the PL policy unless arising directly from breaches of professional duty)
• Dishonesty of the Insured.
• Products supplied
• Insolvency or Bankruptcy
• Fines penalties and punitive damages

Key underwriting considerations:

If we are asked to quote, the kind of information required will include:

• Type of profession.
• Details of qualifications and experience of partners.
• Total fees
• Largest contract/client
• Any fees paid to sub-contractors
• Number of partners/staff
• Standard terms and conditions used
• Details of risk management and quality control
• Details of previous insurance including any declinatures 
• Claims experience
• Details of other incidents
• Limit or excess required (policies always carry an excess)

Please call me on 01841 532939 if you would like to discuss this or any other insurance.