What is professional indemnity insurance and when will it be required?

Complaints from dissatisfied clients

Often business which deal specifically with clients and consumers will be open to claims from dissatisfied clients or consumers due to a mistake made by that business.

Accordingly they will need insurance in place that will protect their business from potentially financially crippling and in some cases reputation damaging claims from dissatisfied clients. All companies regardless of the high position they may occupy in the global market can still find themselves in a dispute with a client over a mistake. 

Accordingly professional indemnity insurance is a must for all businesses as it will protect them from potential claims made by clients and other third parties.

Is there any industry which must ensure that they have professional indemnity insurance in place?

It is advisable for all businesses to obtain professional indemnity insurance as a matter of course. However, it is particularly essential for any individuals or businesses that provide advice, design work or any other professional service. Examples of professions which fall into this category are architects and accountants.

Why is it essential for these kinds of professions?

Professional indemnity insurance is essential for these kinds of professions as they can easily fall victim to third party claims of professional error, omissions or neglect. If an individual working in one of these professions takes out professional indemnity insurance then they will remove this element of risk.

As well as protecting an individual or a company against any compensation claims made by a client it will also cover any legal costs experienced when defending any claim.

What areas can a business be open to potential complaints from clients?

The following are danger areas in which a business may be exposed to a legal claim from an existing client or third party:

  • Negligence – in relation to a breach of duty of care
  • Intellectual Property Rights – in the scenario when a company unintentionally infringes another’s right in copyright, trademarks, broadcasting rights or any claim of passing off
  • Loss of documentation or data – in the scenario whereby a business damages, looses or has data belonging to their clients stolen from them
  • Dishonestly – whereby liability may arise from the theft of client’s money

In what ways will professional indemnity insurance protect my business?

A professional indemnity insurance policy will provide the following benefits to a business:

  • Cover will be provided for the situation where a mistake is made in the delivery of professional services that leads to a dispute with a client
  • If a business loses the claim the damages that they are liable to pay will usually be covered by their professional indemnity insurance policy
  • Usually a professional indemnity insurance policy will also cover the potential costs in fixing the mistake – this will avoid the potential of a larger claim being made
  • If any clients documents are lost this will be covered by the professional indemnity insurance policy
  • If any employees of the company are involved in the theft of client’s money then this will be covered by the professional indemnity insurance policy
  • Also the company who the policy is taken out with may also provide access to a specialist legal team in order to reduce the costs in defending a potential claim by a client or third party