Professional Indemnity Guide

We live in litigious times, so any business worth its salt will normally need some form of indemnity insurance to protect its directors and officers against the risk of being sued by an employee, supplier, customer, shareholder or other financial backer.

In fact, with the rise in legislation affecting health and safety, the environment and employment law, the list of possible sources of a law suit against a company director is endless. Hence the need for professional indemnity insurance.

Use the links below to move to that section:

• What is Professional Indemnity?
• How will it protect my business?
• How much cover do you need?
• What information do is needed to get cover?
• Which insurer?

It’s the kind of insurance that protects your business from financially crippling and often reputation-damaging claims by dissatisfied clients.

Because In today’s more litigious world, more demanding consumers, even the most respectable companies can find themselves in dispute with a client over a mistake, we list below some of the danger areas your business could be exposed to:

• Negligence: or breach of duty of care;
• Intellectual property: unintentionally infringing other companies’ or individuals’ copyrights, trademarks, broadcasting rights or any act of passing off;
• Loss of documents/data: damaged, lost or stolen data and documents belonging to your clients; and
• Dishonesty: liability arising from the theft of your clients’ money

Different professions, different professional indemnity.

Which particular risks you are most likely to face depends very much on the nature of your business.

• IT consultants are often left dangerously exposed by the service contracts they are required to work under. Breach of either specific, or implied, terms in a contract is a well known risk in IT.
• Marketing consultants, on the other hand, are considered more exposed to dangers such as unintentional breach of privacy, or defamation (accidental libel or slander)
• Management consultants are vulnerable to claims of negligence any time their recommendations fail to come up to their clients’ expectations.

An underwriter will use his knowledge of these groups of workers to offer cover against the problems that they are most likely to experience.

Professional Indemnity works in a number of ways.

• It will cover you if you make a mistake in the professional services you have provided that leads to a dispute with a client. If the dispute becomes complicated and nasty, the insurer can defend your claim, right through to the High Court, if necessary. Even if you lose, the policy will still cover you for any damages you then become liable for, subject to the level of cover your business is insured for.
• The policy will also cover the cost of fixing any mistake on your part, thus avoiding a larger claim being made. Fixing a problem before it becomes an even bigger problem is simple common sense.
• You are also protected if you lose or damage a client’s documents in your care or if one of your employees are involved in the theft of a clients’ money.

Other benefits include:

• direct access to specialist claims staff and advisers who understand your industry;
• access to specialist legal teams to defend a claim in court;
• avoiding large legal costs your business would otherwise have to pay for; and
• protecting your reputation as well as the bottom line

No two businesses are the same and there is no single amount of cover that suits all. Nobody knows your business and the exposure it faces better than you, but it may be advisable to buy as much cover as you can reasonably afford.

Often, your clients will set a minimum limit of the indemnity they require. This can depend on the specific nature of the services you’ve been contracted to provide, or they could have a set limit for all their service providers.

For example, many UK government departments will require their contractors and consultants to have at least £5 million of cover. It’s also worth considering taking out retroactive cover for work that you’ve already completed before the policy commences.

To make the process as easy as possible, the insurer will need to know the following, so have the information to hand before applying:

• your profession or industry sector – so that it can offer you a tailored policy
• your business name, a contact name and a valid email address to send your policy to
• your business trading address
• your annual gross income, annual fee income or your estimated first year’s revenue if the business is just starting up
• your answers to questions about your business activities and previous claims history
• the date cover is to begin
• your bank details for payment

Some insurers offer a one-size-fits-all professional indemnity insurance policy, irrespective of profession. If you want a more tailored approach, there are a number of Lloyd’s of London syndicates, such as Hiscox, which specialise in professional indemnity.

Factors to consider when picking an insurer:

• is it a specialist in PI?
• what is its track record in this business?
• can you get a quote and buy online with same day cover?
• does it offer add-on policies including contents, computer equipment and public liability?
• does it have an expert legally trained claims team?
• does it offer easy payment options, including interest free monthly direct debit?
• Is it authorised and regulated by the Financial Services Authority?