What Is Professional Indemnity Insurance?
Professional Indemnity insurance is a type of liability insurance that protects you against claims from disgruntled clients.
Most of us are familiar with the everyday insurance cover types such as motor, travel, home and even Public Liability for businesses, but an area you may not be aware of or fully understand, is Professional Indemnity insurance.
So What Is Professional Indemnity Insurance?
Professional Indemnity insurance, which can sometimes also be called Professional Liability insurance or PI insurance, covers any legal costs and expenses incurred in your defence, in addition to any costs that may be awarded to third parties, if a claim is made against you, alleging that your business has provided inadequate advice, services or designs which have caused your customers to lose money.
How Does Professional Indemnity Work?
When we take out one of the previously mentioned types of policy such as car insurance, then the insurance company will pay out, should an incident occur during the period you are covered by them. Professional Indemnity insurance (PI), works in a different way - It is on what is known as a claims made basis, meaning that the insurance company who insures the policyholder at the time a claim is made, is responsible to pay for such claim, rather than who was insuring them at the time the negligent act occurred.
So, For Example…
If a business takes out an insurance policy with Insurance Company A for the period from May 1st 2015 to April 30th 2016, then they are responsible for any claims made during that time. If that same business then changed their insurance company to Insurance Company B for the period from May 1st 2016 to April 30th 2017, then this second company is responsible for any claims made in this period whether they relate to negligence occurring during the time that they have insured the business, or not. This is why it is always important to ensure you have the correct retroactive date on your policy. This means your historical work is covered as well.
Who Could Benefit From Professional Indemnity Cover?
The types of occupations that will require PI are any individual or company who offer/charge for advice and/or offer a service, such as solicitors, accountants, financial advisors and architects. Some professional bodies will make it a requirement that every one of their members has this type of cover before they can join their organisation.
Remember To Log All Incidents
It is therefore very important to keep all paperwork up to date, log all incidents that occur, and keep records of anyone who is involved. Should you choose to close your business or retire, it may be wise to arrange with your broker a “run off” period for an amount of time that you feel would be adequate enough that the risk of anyone suing you is greatly reduced.
Other Names For Professional Indemnity
This type of insurance can sometimes be known by different names, depending on what organisation it is and in which country; Malpractice Insurance is one name, and Errors and Omissions is another. If you are unsure if it is a type of policy that you may require or could benefit from, then contact an insurance broker who will be able to explain exactly what the policy covers and if it is suitable for your line of work. A phone call to ask them “what is Professional Indemnity insurance?” could easily solve your query and help you arrange the most suitable cover for your business.