Published: 18 June 2024
Essential facts about Professional Indemnity Insurance
Professional indemnity insurance is an essential form of liability insurance cover for individuals and businesses who provide professional advice or services to clients. It’s important to understand how this type of cover works. Many individuals and businesses incorrectly believe that it won’t apply to them.
A common example of when Professional indemnity insurance is necessary is when a client makes a claim against your business for an omission or mistake which causes them financial loss or damage.
Professional indemnity insurance provides a financial safeguard to keep your business running in the face of potential litigation. Depending on your policy, it can cover:
- Costs to defend allegations
- Legal defence fees
- Compensation payments
Don’t assume you can only take out professional indemnity insurance if you are a member of one of the traditional ‘professions’.
In fact, any individual or business who provides services or advice which their clients can act on, should consider whether professional indemnity insurance is right for them. This includes accountants, engineers, real estate agents, architects, mortgage brokers or IT contractors, to name a few.
Professional indemnity insurance is a complex area, and it is not guaranteed that the risks you face will be covered by any professional indemnity policy.
For example, many insurers won’t cover builders and other entities in the construction industry for damages that relate to building cladding, given the problems many buildings have encountered with flammable materials.
It’s important to read the fine print in policies and develop a real understanding about which professional risks are covered and which are not. We’re here to help and please contact your broker if you have any questions.
It’s equally important to understand which policy extensions are available. For example, many policies will include extensions for investigation costs in the event a claim is made against a policyholder and the impacted business or individual needs to obtain specialised legal services.
It’s also essential to understand the policy’s retroactive date (also known as retroactive coverage), which is a feature of claims-made policies (professional liability or errors and omissions insurance). This date determines whether your policy will cover losses that occurred in the past and if a claim happens prior to your retroactive date, your policy won’t provide benefits.
Professional indemnity insurance is important to protect advice and service-based businesses. Talk to your broker about the right insurance cover for you.