Warning: The details included here have been gained from personal experience, and the information is provided only as a guide and background information. Advice should be taken from professional advisors and professional indemnity insurance providers before deciding upon the required course of action. This is also important as risks and professional indemnity insurance cover provided will also vary according to the different areas of the world.
Setting up a small business or undertaking contract work or consultancy can be very exciting, there are also risks. Whilst great care is normally taken to offer the best service, there can be circumstances where things go wrong and litigation may initiated to make claims against the company.
It is for this reason that taking out professional indemnity insurance or PI insurance may be thought to be a wise precaution. The aim of professional indemnity insurance, or PI insurance is cover against the serious financial issues that could result from any litigation and court action.
While every precaution and care can be taken to prevent problems, there is a small but finite risk of clients taking legal action. Even the most respectable companies can find themselves in dispute with a client over a mistake.
This can have disastrous consequences for a small company or business and a as result it is worth considering the protection offered by professional indemnity insurance or PI insurance cover.
The PI insurance can be taken out to meet a variety of requirements. Those operating on their own may take out what could be termed contractor professional indemnity insurance, and other companies with more staff may take out professional indemnity insurance cover for the company as a whole. The cover can be tailored to suit the needs to the company or individual.
Possible causes of litigation
Professional indemnity insurance cover can be required to protect against a number of occurrences. These can occur as a result of a variety of issues, but generally they can fall into the following major categories
- Negligence: Despite the best efforts of an individual or company, errors can occur and the responsibility for these can fall on the individual or company who has made the error.
- Intellectual property infringement: Professional indemnity insurance cover can be used to protect against the unintentional infringement of copyright, trademarks, broadcasting rights or general intellectual property owners.
- Loss of documents and data: One important area between a company and a client is that of protection of data and documents. Sometimes non-disclosure agreements may be signed emphasising the importance of the data. Occasionally data may be lost or unintentionally passed on and under these circumstances professional indemnity insurance cover is required as protection.
- Dishonesty: Any company employing people is open to their dishonesty. Although comparatively rare, its results can be devastating. The theft could include money hardware or data belonging to clients. Again the professional indemnity insurance cover can be used to protect against this.
These categories cover a number of the areas that professional indemnity insurance cover can be used to provide protection.
Benefits of professional indemnity insurance cover
The actual risks that will be faced by any company or individual will depend upon the exact nature of the business. The professional indemnity insurance policy can provide cover in a number of different areas according to the policy:
- The professional indemnity insurance may provide cover against the effects of a mistake being made in any professional services being provided. If any dispute cannot be resolved satisfactorily and is taken to court then the insurance may provide legal cover, and even if the court case is lost then it may provide cover for the damages. Check the exact terms with your advisor.
- The indemnity insurance may cover the cost of fixing any mistakes made and therefore avoid a larger claim being made, but check this with your advisor.
- The professional indemnity insurance may also cover against the loss or damage to any clients' documents, but again check this with your advisor. It may also provide cover in the even or an employee being involved in the theft of any of the client's intellectual property or money.
It is necessary to check the exact cover that any professional indemnity insurance policy provides as they vary considerably from one policy to the next and one insurer to the next.
It is also very important to check the level of cover provided. Professional indemnity insurance policies have a limit of liability and this should be checked to ensure that it is sufficient.
A further point to note is that it is worth considering taking out retroactive cover for work that has already been completed before the policy commences. As problems can take some time to come to light, this additional precaution can provide additional essential cover.
Is professional indemnity insurance mandatory
For some small businesses undertaking very low risk work, professional indemnity insurance may not be mandatory. However in a variety of areas it is mandated: certain industry bodies mandate that PI cover must have been taken out.
In fact, many companies require that small businesses: contract workers; IT contractors; management consultants; engineering consultants and many more, to have PI insurance cover before a contract is awarded.
Even for small companies that are not mandated to require PI cover, it can be a good idea to investigate it, because should the unthinkable happen, then insurance will be in place to cover it.
How to take out professional indemnity insurance
PI insurance is available from many insurance providers. Professional indemnity insurance is used by a huge number of businesses, consultants and other organisations.
In view of this, PI insurance is available from many different providers. However it can be relatively expensive in view of the level of cover that needs to be provided.
In view of the costs of PI Insurance, it pays to shop around. Where can it be obtained?
There are many places to look for professional indemnity insurance:
Online: There are many companies that advertise online to provide PI cover. If this route is adopted, then it is worth spending some time to make sure that the cover is right for your needs. Check that the company is reputable and see if it is possible to fund reviews of the company elsewhere.
Via an insurance broker: Using an insurance broker is the traditional method of obtaining professional indemnity insurance. If you have built up a relationship with the insurance broker then there can be a level of trust for them to find the right PI cover for your needs. Even so, you will need to check that whatever is offered meets the needs of your business.
Professional institute: Some professional institutes may offer tailored professional indemnity insurance for their members. Often this can be at favourable rates, so if you are a member of a professional organisation or institution, then this avenue may be worth investigating.
Whatever route is taken for the professional indemnity insurance, it is absolutely necessary to make sure that it covers your needs. Although the policy may be written with legal wording, it is well worth spending some time to make sure that the PI cover provided is what is really wanted. It is also necessary to assess the level of cover required and the overall terms, etc. Only these can be advised by a qualified insurance advisor.
In many countries other forms of insurance are required to be taken out by incorporated businesses and sometimes other forms of business. Public liability and employer liability are two forms of insurance often required. It is worth considering that some savings could be made by taking out the PI insurance with the same provider as the other forms of insurance. It may not always be the case, but is an avenue worth investigating.
Again it is necessary to re-iterate that proper professional advice should be sought to determine whether professional indemnity insurance, PI insurance is a wise precaution as this is only a basic explanation and it should not be deemed as the basis for making a decision on taking out this form of insurance.
Electronics Notes is not licensed to provide advice and therefore this article is only written to highlight the need that businesses may have for PI cover and also the availability of professional indemnity insurance.