To Err is human, and to make easy to admit, it is Professional Indemnity Insurance.
What Is Professional Indemnity Insurance?
Professional Indemnity insurance also called as Errors and Omission Insurance is designed for professionals who provide advice or a service to their customers.
If a mistake or omission occurs in the course of your work that results in financial loss or injury to a third party (e.g. a customer)—that customer may take legal action against you to recover their losses. Professional Indemnity insurance seeks to protect both your assets and your reputation, should this occur.
Having this insurance in place means that you will take complete responsibility for your business and it helps in gaining trust of the client.
What Does Professional Indemnity Insurance Cover?
The policy pays other parties for damages which you are legally liable to pay as a result of negligent acts, errors or omissions in the performance of your professional services including defence cost, court attendance fee etc. The insurance company has an obligation to defend you against such claims, even if the allegations ultimately are determined to be false or groundless
Who Needs Professional Indemnity Insurance?
Professionals who provide advice including consulting or contracting (such as Chartered accountants, Company secretary, Lawyers)
You provide designs to your clients (such as working as an architect or design engineer)
You want to protect against allegations of mistakes or negligence in work you have undertaken for your client
You work as a contractor, consultant, freelancer or self-employed professional, and your client has requested you arrange professional indemnity insurance in order to undertake a contract
Your industry association/regulatory body requires you to have it
Your Client is asking for it before giving the contract.
What Are Incidences Covered:
Unintentional Breach of Contract; Any actual or alleged neglect, Error, Omission, Misstatement or Misleading Statement;
breach of any duty to use reasonable care, including but not limited to negligent transmission of a computer virus, worm, logic bomb or Trojan horse or negligence in connection with a denial of service attack, or negligent misrepresentation;
A breach of any duty of confidentiality, or violation of any other legal protections for personal information, including but not limited to intrusion upon a person’s seclusion, public disclosure of a person’s private information, misappropriation of a person’s picture, name, voice or identity.
Defamation including but not limited to libel and slander;
Intellectual property infringement (but not any patent infringement or trade secret misappropriation), including but not limited to copyright infringement, trademark infringement, trademark dilution, trade dress infringement, publicity rights violations, cyber-squatting violations, moral rights violations, any act of passing-off, or any misappropriation of formats, characters, trade names, character names, titles, plots, musical compositions, voices, slogans, graphic material or artwork;
any actual or alleged act of fraud/dishonesty.
Should I Notify The Circumstances Which May Or May Not Lead To A Claim ?
As an Insured, you have a duty to notify your Insurer as soon as you are made aware of a potential claim. If your PI policy renews and you have not declared a matter you were aware of, Insurers may look to deny an insurance claim. In essence, any circumstance that you feel could reasonably lead to a claim, should be notified to your Insurer. However, what appears reasonable to you may not be viewed the same way by an Insurer, so the thumb rule is… “when in doubt, notify”!
What Does ‘Claims Made’ Mean?
A Claims made insurance policy means you must have a policy in place at the time you are first made aware of a claim or potential claim, or are first notified of circumstances that could lead to a claim. This means that provided the wrongful act occurs during the period of insurance, and you report it to the insurer during the period of insurance, it will be covered. However, if the policy is cancelled or not renewed, cover will end and any subsequent claim – regardless of when the wrongful act occurred – would not be covered by that policy. As such, it’s important to have professional indemnity insurance cover in place even after the work is completed. The subsequent renewals are covered from the date of inception of first PI insurance policy maintained without any break and this date is called as retroactive date.
This contrasts with a ‘claims occurring’ policy which provides cover for claims which occur during the period of insurance. Professional indemnity policies are rarely, if ever, written on this basis.
What Is ‘Run Off’ Cover?
Run off cover insures against claims of professional negligence brought against you after your business has ceased trading. This could be, for example, if you have sold your business or closed it down. It is particularly important for retired business owners to consider; without run off cover in place, they would have to fund the defence of the claim out of their own back pocket.
What About Consequential Losses From Professional Negligence?
In the context of professional indemnity insurance, consequential loss is a financial loss suffered by your client that’s indirectly due to your mistake or professional negligence.
Consequential loss is sometimes covered under professional indemnity insurance, although you should check your policy documents to make sure. Even if your professional indemnity insurance does cover consequential loss, there will usually be some exclusions.
Will Mistakes Done By My Contractual Employees Are Covered?
You need to tell your insurer that you have employees (even if they’re contractors) so that they’re noted on your insurance policy. Your professional indemnity insurance can cover mistakes made by your employees that result in a compensation claim from your client, and this can potentially include mistakes made by your contractors.
Does Professional Indemnity Insurance Cover Breach Of Contract?
Professional indemnity insurance from Simply Business doesn’t cover you if you’re sued by a client for breach of contract. Contractual liability is excluded from the cover.
What Does Professional Indemnity Insurance Exclude?
Claims expenses in respect of salaries of the Insured’s employees, officers and directors and office expenses.
Any Claim arising out of any fact, situation, circumstance or incident: which the Insured knew about, or should reasonably have foreseen, might lead to a claim against the Insured at the date of inception of this policy and which was not communicated to the Insurer at that time; or which notice has been given under any other insurance prior to the inception date of this policy.
Loss due to war, invasion, act of foreign enemy, hostilities, civil war, insurrection, rebellion, revolution, mutiny, military or usurped power, riot, strike, lockout, military or popular uprising, civil commotion, martial law or loot, sack or pillage in connection therewith, confiscation or destruction by any government or public authority, whether war be declared or not.
Fines, penalties (whether civil, criminal or contractual), punitive damages, exemplary damages, treble damages or any other damages resulting from the multiplication of, or in excess of, compensatory damages ordered by a public authority unless insurable by the law under which this policy is construed.
Any claim based upon or arising out of any infringement of patents or trade secrets.
Any claim by person or organisation:
which is directly or indirectly owned, controlled, operated or managed by an Insured, which owns, controls, operates or manages an Insured.
As to which any Insured is a partner, consultant or employee, unless such claim is instigated and continued totally independently of, and totally without the solicitation, assistance, active participation or intervention of any Insured.
However, this exclusion will not apply to any portion of any claim based on a liability to an independent third party directly arising out of the performance of the insured profession but which is brought against the Insured via a subsidiary, parent or sister company.
Any claim arising out of an Insured’s activities in the capacity of an elected public official or as an employee of a governmental body, subdivision or agency thereof, unless the Insured is deemed an employee solely by virtue of the rendering of insured profession to such governmental body, subdivision or agency thereof, and the remuneration for such services inures to the account of the Insured.
Loss for which the insured is obligated to pay by reason of the assumption, in a contract or agreement, of liability. This exclusion shall not apply to an unintentional breach of contract by the Insured.
Any claim based upon, arising out of, or attributable to the insolvency or bankruptcy of any insured
What Is The Difference Between Jurisdiction And Territorial Limits?
Territorial Limit refers to the place where the act, error or omission occurs. Jurisdiction Limit refers to the fact that the policy will only cover claims brought within the court system of the nominated countries.
What If I Forget To Include Names Of My Companies?
All of your trading entities, and consequently all entities which could possibly be drawn into legal action as a result of an alleged professional breach, must be noted as “Insured(s)” under the PI policy. You can check this on your policy schedule.
If one of your trading entities is omitted from the list of insureds on the policy and a claim is brought against that entity, it is likely you would have no PI insurance protection. If this changes throughout the policy period, it is essential to inform your insurance adviser so we can ensure your insured entities are always up-to-date.
What If I Forget To Mention Some Of My Services In The Policy?
It is imperative that all business activities or services offered by the engineering firm are noted on the PI insurance policy schedule.
An insurer could look to decline a claim if they are unaware of a business activity carried out by the engineering firm that has led to a potential claim. If your business activities change in any way, be sure to tell your Insure broker so they can update this on your Professional Indemnity Insurancepolicy.
How To Ensure Your PI Policy Covers Vicarious Liability
Working with your insurance broker, you must always make sure your PI policy covers any possible liability you could incur as a result of the actions of consultants, sub-contractors and agents engaged by you to carry out your professional services for, or on your behalf.
If one of these parties is found to have breached their professional duty and damages are brought against them, you could be found partially or fully liable as you chose to engage their services on your behalf. If your policy does not cover what is termed as ‘vicarious liability’, your Insurer may decline any such claims.
Professional Indemnity policies generally exclude claims that arise from facts and circumstances known to the insured before the start of the policy period. Even though it could be an honest oversight, failure to notify the insurer of a ‘known fact or circumstance’ that gives rise to a claim could result in an uninsured loss. Continuity Clauses address the above by extending cover under the policy to claims that arise through of a fact or circumstance which could have been notified under a previous Professional Indemnity policy, but the insured failed to do so. For the Continuous Cover clause to apply, the insured must have been insured under a Professional Indemnity insurance policy issued by the insurer at the time they first became aware of the fact or circumstance that gives rise to the claim. The claim must have been covered under the previous policy, and the insured must have continuously, without interruption held a Professional Indemnity insurance policy with the insurer until the time when they notify the claim to the insurer
Additionally, the insurer’s liability is typically restricted to the indemnity available under the previous policy.
As indicated above, the ‘Continuous Cover Clause’ is an incredibly important policy feature to consider should you decide to change Insurers at renewal. If you switch insurers, your new PI policy will typically carry a limitation around the “continuity date” applicable to the policy – it will likely be limited to the day the new Insurer took on the policy. We at Ethika Insurance Broker will ensure that the new insurer covers the risk from the retroactive date i.e., the date of first inception of policy.
How Much Professional Indemnity Cover Will I Need?
The right level of cover for your business depends on the company size and the type of work you are doing.
This will also depend on the severity of the financial impact of a mistake in your line of work; it should be enough to cover the cost of defending or settling any claims you might face. To calculate this, check your contracts and the value of your projects and talk with peers or a professional body. We’ll tailor your policy to suit your needs, so you’re properly protected.
If you’re unsure about how much cover your business needs, here are a few things to consider when choosing what level of PI is appropriate:
The first thing to check is whether your clients require you to hold a specific amount of professional indemnity insurance. It is common for businesses to require their suppliers to hold certain types and amounts of insurance so that if a mistake arises all parties are protected by an insurer. You should review your contracts carefully to check if you need to hold a specific amount of professional indemnity cover.
If you are a member of a professional body, your professional body may also require you to hold a certain amount of professional indemnity insurance as a condition of your membership.
An important factor to think about is the size of the contract you have with your client. If your client is not happy with your work, they may try and bring a claim against you to recover money they have paid you. You should ensure you have a limit of indemnity to cover this.
If there is a problem with your work, that problem can have a knock on effect on your client and the project you are working on. You could be liable for losses your clients suffer as a result of your mistake, and that cost will often exceed the amount your client paid you in the first place
If a problem with your work causes a client to have to delay or restart a wider project you could face a claim for the value of the overall project. You should consider the size of the project you are working on, and the likelihood a mistake could impact a wider project. You might want to make sure you have a high enough limit of indemnity to cover a claim for all, or part of the total project cost. Think of the worst-case scenario and how much it could post to put it right.
If the worst comes to the worst, a client may ask for compensation to cover the money paid out to you, as well as the cost of rectifying any mistake you make. Think of the worst-case scenario and how much it could post to put it right.
As well as potentially being required to compensate your clients, there may be legal costs to pay for the investigation and defence of your case. Don’t underestimate how much this could potentially cost.
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