The following is a guest post.
Professional Indemnity Insurance is available to protect you from the costs of defending (and perhaps settling or being ordered to compensate) cases brought by clients dissatisfied you’re your professional work.
Depending on the type of business you own, the sort of cases that might be brought against you will vary. So for example, if you were running accountancy or bookkeeping businesses, if you were to make a mistake in your advice or calculations you might cause your client to lose a significant amount of money. Your client might sue you for that money – if you have Professional Indemnity Insurance, the policy would cover any compensation ordered or agreed, and would cover legal costs throughout the case.
Other types of business that might require Professional Indemnity Insurance include IT support and servicing businesses. If your business involves fixing or improving the IT systems and software of your clients and something were to go wrong – for example, a virus were introduced or vital documents were lost – then you could be held liable for the losses that your client might sustain. These losses could run into thousands of pounds, and on top of that you would be expected to pay your own legal fees plus those of your client assuming that your client was successful in bringing their case.
As always with legal fees in court proceedings there is a risk that if you win your case you might still be made to pay your own legal fees. A court might order that your client to pay your legal fees, but your client might not have the money to do so. Ending up thousands of pounds out of pocket after winning a case might seem unfair but it is feasible. Taking out Professional Indemnity Insurance would protect you against this scenario.
Professional Indemnity Insurance will cover a range of circumstances, though exactly what will be covered will depend on the type of work you undertake. Your policy will normally cover against claims brought because of your negligence and against the cost of putting right any loss of documents that were lost or damaged. The policy will normally also cover against claims made for breach of copyright or intellectual property. It might also protect against the costs of arbitration (which is a form of mediation designed to resolve disputes without going to court). If your business is required to abide by certain national rules or regulations (such as electrical safety requirements) and you fail to abide by them, then your policy might cover the costs of defending yourself against any criminal proceedings or against actions brought by the Health and Safety Executive.
A common action against professionals is breach of contract (e.g. if you are an IT consultant who has been contracted to arrange and fit certain software and that software isn’t available for some reason, you would have breached your contract and could be sued). This is normally covered by a Professional Indemnity Insurance policy.
There are some professions that are normally excluded from being covered by Professional Indemnity Insurance. These include professions such as manual trades, entertainers and physical trainers. Check that any policy you are going to buy will cover your particular trade.
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photo by: Alan Cleaver