Whether you operate as a sole trader or run a business that employs people as consultants, if you offer your services in a professional advisory capacity then it is likely you will require P.I cover. But what is professional indemnity insurance and how does it help?
Professional indemnity insurance acts as a financial safeguard to protect a business if a client claims there are issues with the work produced which has caused them financial loss or the potential for loss.Mistakes are not intentional, but they still unfortunately happen even with the tightest controls, and they can cost a client money. Professional Indemnity or Liability insurance can help cover against all manner of mistakes including negligence, breach of confidential information, breach of data, inaccurate or poor advice etc, all of which can result in financial loss for a client.
When should a business get professional indemnity insurance?Some regulatory bodies and professional memberships require a business to have professional indemnity insurance as part of being in their association. However, it is sensible and would be good practice anyone providing professional services, handling client data or dealing with intellectual property to have PI insurance. As we know mistakes happen and breaches occur. Even if it’s not your fault, you could still be challenged and of course If an employee gets it wrong the onus of blame is on the business owner.
Even if you’ve been accused of a breach which you know is not an error by anybody in the organisation, you may still have to defend yourself even before it gets to court.
How much professional indemnity cover is enough?
Often this depends on the value of the contracts a business deals with and also the financial severity of making a mistake.
A good guide would generally come from any professional association your business is affiliated to. At the least it should be enough to cover the cost of defending any claims plus any settlement at the higher level of your contract value. Also, an insurance provider who has knowledge of the type of business conducted would also be able to advise, but it’s not uncommon to get cover ranging from £2million for lower risk/lower value work through to £10m to cover legal fees awarded against the business, court costs, damages to the claimant etc.
What does professional indemnity insurance cover?
One of the most common claims is to put right mistakes and negligence.
Business is often demanding and at fever pitch.
Mistakes happen and thing go wrong. It’s rarely intentional but one simple mistake can trigger a chain of events that may end up catastrophic.
An employee may misinterpret a measurement on a drawing for example. A product is made specifically for that project from those measurements. It turns up on site where contractors are waiting with a very expensive crane to lift it in place and it’s discovered it won’t fit.
Contractors are stood around while the dilemma is discussed, they then have to leave site to be rescheduled. The crane is taken away but had been booked on site for a period of time. The product has to be re-manufactured. The project is delayed which has ramifications down the line for all other contractors on the project.
Who pays for the lost contractor time, the rescheduling, the crane, the fines for a delayed project etc?
On large projects it can run into hundreds of thousands and cause major embarrassment or loss of faith in the Principal Contractor.
Professional Indemnity insurance would help set this scenario right without bankrupting the business.
Data security is now a serious business.
Data can easily be hacked or accidentally shared to others in an email. It isn’t always the obvious loss such as losing a laptop or famously being photographed carrying state secrets outside Number10.
It’s often stolen maliciously but can easily and unintentionally be shared to many receivers.
In many professions, protecting confidential information is essential for maintaining trust and ongoing business with the client. This is the same for large corporations, small businesses and freelancers. Failure to do so can result in court cases, terminated contracts and even the collapse of the business.
Breaches of confidentiality and data loss cost businesses millions of pounds every year, and it isn’t just larger companies that need to have an awareness. Smaller businesses and even freelancers can fall foul of a breach of confidentiality claim.
To avoid a breach of confidentiality or data loss in the workplace, many experts suggest it’s essential that everyone in the business has the correct awareness training on security, has signed an employee non-disclosure agreement, implements secure passwords and encrypts sensitive data.
For business owners and employees alike, understanding what constitutes a breach of confidentiality is part of your professional responsibility.
Losing client data, documents or intellectual property can lead to a claim being made against a business for professional malpractice.
Commonly, most PI policies will provide cover against a claim for data loss or confidentiality breaches.
Unlike a client who may be unhappy with a business because the product or service has caused damage or injury (this would generally be covered by public liability insurance), a client may just be unhappy with your work/professional input, or what he perceives as the quality of your work.
You might have tried your best and carried out the work to the best of everybody’s ability, but sometimes it’s just not enough.
Sometimes there’s no clear mistake. You did your job to the best of your ability and for some reason, your client isn’t happy. They may decide your work or advice cost them money and make a claim against you. Right or wrong, PI cover will usually support you and absorb the ongoing costs.
What is professional negligence?
A charge of Professional Negligence can come about when an individual or business offering professional advice or services fails to perform or discharge their duties in a manner that isn’t to the required standard, or they breach their duty of care resulting in financial loss, injury to a client or customer or physical damage.
A claim of professional negligence can be made against anyone considered to have expertise in the services they provide, and for the claim to be successful there must be evidence that the advice or service fell below that expected of their professional standing and caused harm, damage or loss.
Let’s say for example that Mandy runs a catering business and specialises in buffets for special needs groups.
She fails to read the client’s notes fully and doesn’t spot that somebody has a nut allergy. As a result one of the group has a severe reaction and is taken to hospital.
Negligent or not?
Is she negligent? Well that would be up to the court to decide, but even if it wasn’t in the notes an accusation of professional negligence could be brought because as a person providing buffets for special requirements is seen as an expert and could have foreseeably been aware of the danger.
Other examples might be failing to spot a serious defect when a professional surveyor carries out a property inspection, or a tax consultant who fails to mention a suitable tax break, or a designer or architect who fails to design appropriate heat loss insulation into a structure, or even a personal trainer who fails to carry out an assessment of the client’s previous injuries causing further damage or pain.
It’s important to be aware that whether the business is in the right or the wrong, once a professional negligence claim has been made it could still be liable for legal fees and the cost of defending the claim. Often without appropriate insurance in place the business ends up dissolving quite quickly afterwards, especially if it’s a new or small enterprise.
Different businesses have different requirements
For professional business consultants the consequences of negligence will be different to those in the property business for example. As will property be different to those professionals in the health, beauty and wellness industry and this includes negligence.
Therefore, it’s important that you get your level of cover appropriate to your industry so if a business is accused of failing in its duty of care then it’s properly covered and can carry on trading.
It’s essential therefore that you speak to an insurance company that deals with business and preferably has an advisor that is familiar with your particular line of business.
Training and CPD
HST have teamed up with an online partner to bring you health, safety and compliance training at very affordable prices. These courses available 24/7 so you can study at a time to suit you.