What is Professional Indemnity?
Professional indemnity (PI) insurance protects business owners, freelancers, contractors and the self-employed if a client claims a service failed to meet expectations.
Anyone who provides a professional service could have claims brought against them by a client. A customer might say you were negligent, infringed their property rights, gave damaging advice, breached a confidence or made a mistake which cost them money.
Indemnity cover, also known as professional liability insurance, is designed to safeguard service-based enterprises, whatever might happen. If a claim is made against you, this cover bears the cost of putting things right – including your legal fees and defence costs, even if the claim is not successful. Indeed, many professional trade organisations and institutions require you have indemnity insurance before becoming a member.
Professional liability insurance helps in a wide range of scenarios such as professional negligence claims, data loss claims and allegations you’ve given poor business advice.
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How would you fund the legal costs and awards made against you?
Why Ascend for your professional indemnity insurance?
The amount of PI cover you’ll need will depend on the specific circumstances of your business. Our Professional Indemnity team has a wealth of experience in the market and can offer cover which is both cost-effective and wide ranging.
We understand the need to minimise costs and strive to strike a balance between comprehensive cover and affordable premiums. We provide solutions that are flexible and tailored and, with access to the entire Company & Lloyd’s of London market, we can offer protection to you and your business, whatever its size and complexity – matching your needs and risk with the right insurer and the right cover.
What does PI insurance cover?
- Errors & Omissions
- Failure to complete a project on time or as specified
- Breach of confidentiality or copyright
- A libellous or slanderous comment
- Design errors
- Data loss claims
- Failure to apply due diligence
- A member of your organisation leaving sensitive files on a train
- Advice in an email leading to financial loss for your business
- A social media intern sharing a questionable claim about a competitor
Any business that provides advice or a professional service to clients should consider PI Insurance
Who needs professional indemnity insurance?
Of course, mistakes can happen in any line of business, regardless of the sector or industry. However, those that might need professional indemnity insurance include, but are not limited to:
Areas covered by professional indemnity insurance
Architects or other building/construction consultancy business
Business consultants, management, strategy
Designers, including interior designers, graphic designers
Engineering or other contractors
Breach of duty – when a professional or company fails to meet a duty of care towards another.
Breach of confidence – revealing something without informed consent.
Civil liability – the responsibility for paying potential damages.
Compensation – an enforced financial remedy for losses or injury incurred.
Defamation – libel and slander.
Error – a mistake requiring legal remedy.
Negligence – professional conduct that does not meet the standards of behaviour by law.
Omission – failing to perform an act that has been agreed to or inadvertently leaving a word, phrase or clause out of a written document.
What should I look for in a professional indemnity insurance policy?
It’s increasingly easy to get an online quote and set up your professional indemnity insurance policy quickly via the internet, but this is not always going to get you the most cost effective and accurate policy. Plus, conditions are often applied to this type of insurance.
Your cover must accurately reflect your requirements and be truly tailored to you, and we can only do that by taking the time to understand your business inside and out.
Before taking out the policy, you should feel utterly confident it’s the right level of cover for your business and it’s our job to make you aware what it includes or doesn’t include.
We can help you to navigate what is often a confusing but critical landscape. We’ll guide you every step of the way, so you feel confident in the policy and level of protection it provides for your business.
Call us today for a full requirement review and a quote over the phone. We can get documents out to you the same day!
How is the size of the Professional Indemnity risk measured?
There is no perfect system for measuring the size of the risk, but once the rate for a particular occupation is established, along with other factors such as claims history and location then the next consideration is turnover. But the turnover considered for PI purposes are gross fees earnt.
Professional Indemnity insurance pricing is mainly focused on fee revenue, since the risks to professionals typically arise out of the service that they are delivering (as opposed to the sale of products or the existence of property).
The theory being that one company earning £1,000,000 in fees would have twice the exposure of a company earning only £500,000. The theory also is that the latter would have half the number of staff to generate that income hence half the risk. At the moment with the gross fees, we have the most reasonable feel for the size of an exposure.
Some examples of types of Claims or Circumstances under a Professional Indemnity policy.
- Negligence arising from a Breach of Professional Duty due to an act, error or omission
- Fraud and Dishonesty of staff
- Libel, Slander or Defamation against a third party
- Loss of client documentation
- Legal liability for damages and claimants’ costs/expenses arising from the act, error or omission/civil liability of the “Company’s” employees
- Wrongful or inadequate advice to client(s)
- Acting without proper instructions from the client
- Failure to act in accordance with client’s instructions or at all.
- Failure to advise client
- Breaches of Trade Practices Act/Fair Trading Legislation- misleading or deceptive
- Breaches of Statute – eg; Corporation Law or Consumer Credit Code
Do not believe it could happen to you?
An innocent Building Designer
This matter is a very good example of how a person can be dragged into litigation, even though they have done nothing wrong. It also emphasises the importance of having Professional Indemnity Insurance.
Mr Richard Roberts, was a building designer. He prepared some plans for the second floor extension of a holiday house which included a staircase with landings and no winder. These plans were preliminary drawings for the purpose of obtaining a permit. They were not intended to be final working drawings.
The owner of the property subsequently carried out the renovations, but did not use the staircase designed by Mr Roberts. The staircase was changed by the builder to include a winder.
After the extensions had been completed, a family stayed in the holiday house. Early one morning the grandmother offered to take an infant from her mother. The grandmother took the baby and carried her down the stairs to the ground floor.
In walking down the stairs the grandmother stumbled on the edge of a step at about the point of the winder. She fell in the darkness of the early morning. Unfortunately the baby’s head hit the floor and he suffered brain damage. The baby’s parents’ sued the grandmother on the basis of her negligence in failing to switch on the light so that she could see where she was walking down the stairs.
The matter became very complicated because the grandmother’s lawyers and insurer decided to join the builder, the firm which constructed the stairs, and our insured. The insured was alleged to be negligent because he had not designed enough risers in the drawing of the stairway in the first place.
At the commencement of the proceedings it was attempted to have the claim struck out against their Insured on the basis that there was no proper cause of action. The insured had nothing to do with the design of the staircase that was ultimately installed. Unfortunately this motion failed as the judge said that although the prospects of the claim against their Insured appeared slim, the case should be allowed to go to trial.
The case was then listed for trial to determine liability only. The trial went for two weeks. The judge found in favour of the insured in relation to the design and construction of the stair case. The grandmother was found liable for not switching on the light.
The Court ordered that our Insured’s costs (which by that stage were approximately £190,000) be paid on an indemnity basis.
Mr Roberts had this to say about the claim:
“Having notified insurers of a possible claim against me, they immediately arranged for Lawyers to look after me and nurse me through the traumatic period that followed.
I can honestly say that, for the last two and a half years, I have received nothing but courtesy, understanding and help from both companies.
I have never experienced this claim situation before and trust that I will never go through it again but, I can sleep easier in the knowledge that I am supported by an Insurer who I feel is second to none and an exceptionally competent and professional legal team whom I would not hesitate in recommending to anyone.”.
Loss of Documents – What is it?
Examples of Claims for Loss of Documents
Many people ask me, what would a claim for loss or damage to documents that you see usually as an extension to a Professional Indemnity policy?
These must be documents owned by a Third Party that are in the insured’s physical custody and control. A claim for a loss must arise where a third party has suffered some financial loss and it is not intended to cover an insured’s own loss.
An example can be an Architect who releases to a builder, his sole copyright/ownership in his architectural drawings of a multi-storey office block as per an agreed contractual arrangement. The drawings may stay with the insured until completion of the project.
But what happens if the Insured suffered a fire at the premises and did not keep a back up copy off site? There could be a long delay in the construction of the building. The builder could argue that he had suffered a direct financial loss arising from the destruction of his documents (the architectural drawings). He may seek compensation from the insured for the subsequent consequential loss caused by the interruption to construction of the project.
A similar example can be an Accountant who holds on to all the original receipts of a client while calculating his tax owing for the previous financial year. Perhaps he has a Storm causing water damage coming through the roof destroying all the paperwork. The Third Party may need to go to considerable expense in obtaining replacement copies from his own suppliers etc. He may seek compensation from the Insured for these additional expenses caused by the loss of the documents held in the Accountant’s care, custody and control.
Not a common claim but worth having the extension as it is usually free.
We provide an exclusive legal service under our Management Liability Policy with access to a specialist litigation and commercial law firm that specialises not only in the management of legal crises, but also in the education and prevention of them in the first place.
Support against all regulators including:
Information Commissioners Office (ICO) | Health and Safety Executive (HSE) | Charity Commission | HMRC | Food Standard Agency (FSA) | Trading Standards | Local Authorities | DEFRA
- Regulatory investigations
- Regulatory prosecutions
- Breaches of contract
- Fees for intervention
- Employment tribunal and ACAS claims
- Defence for the organisation itself
- £100,000 data protection breach
- Customer/supplier contact cover
- Employee theft cover
- Deprivation of assets
- Employment civil fines
- Pollution clean up cost cover
- Third party electronic funds transfer cover
- Loss of directors’ time
- Brand damage
- Employee engagement impact
- 24/7 out of hours crisis line
- Stress and worry for directors & managers
- Defence against employment tribunal claims
- £25,000 pursuit cover for contract disputes and debt recovery
- Legal defence for directors, trusteees, partners and officers
- Negative social media crisis and public relations costs
- Circumstance investigation/mitigation costs
- 24 hours, 7 days a week crisis line straight to a solicitor
- Legal advice line Mon-Fri 8am-6pm
- Legally privileged advice, support & representation
- Downloadable legal & regulatory advice, support guides,
- Access to our digital tools via exclusive portal
This occurs when you make an error while doing a piece of work for a client. For instance, if an engineer designed a heating system for a large hotel reception room but did not consider its size adequately, meaning the installed radiators did not heat the area sufficiently and the system had to be removed and redesigned.
When business documents and data are lost, companies risk their trade secrets falling into their competitors’ hands. If an IT contractor loses confidential information, a claim could be made against them.
Libel and slander insurance covers you against a law suit should someone feel that you have written or said something defamatory about them that is also false. Slander is the term for anything that has been spoken and libel for anything written.
Accidental use of another’s intellectual property can be an expensive mistake. If a graphic designer uses a font without permission, they are breaking copyright law and could be sued.
Should your client entrust you with money or goods which you subsequently lose, they could sue you. A typical scenario would involve a shoe mender being entrusted with a customer’s shoes: they are legally liable for the safe storage and return of the shoes.
Frequently Asked Questions
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Professional Indemnity insurance is designed to cover a professional person or company for claims made by a third party alleging financial loss due to a breach of professional duty. A professional indemnity policy includes cover for not only the claim for compensation but also the costs and expenses associated with defending such an allegation, protecting you against the financial strain of litigation
Professional Indemnity Cover should be taken out by practitioners and service businesses like surveyors, solicitors and accountants, who provide advice.
The cost of your policy will depend on several factors. These include what kind of business you’ve got, your annual turnover and what limit of indemnity you need.
Yes. Business insurance is considered an ‘allowable expense’ – an essential cost that helps to keep your business running smoothly, and which you don’t pay tax on.
A retroactive date is the date from which you have held uninterrupted professional indemnity insurance cover. It excludes claims from any work undertaken prior to that date.
No, your past work is not covered if a claim is made after you cancel your policy. PI needs to be in place not only when the work was done, but when a claim is made.
No. Insurance premiums are not subject to VAT, but tax is still payable in the form of Insurance Premium Tax (IPT).
If your turnover exceeds the maximum allowable turnover for your policy, you’ll need to notify us, so we can adjust your cover.
Defamation is the umbrella term used for libel and slander – the publication or vocalisation of information, opinions or thoughts that can be damaging to the reputation of an individual or business.
Breach of confidence is when information or data is provided in confidence by a client but disclosed to a third party without permission. Although most breaches of confidence are made by mistake rather than deliberately, if a client suffers a financial loss because of it, they can make a claim against you.
Material Fact or material information is any fact which would influence the insurance underwriter in accepting or declining a risk or fixing the terms and conditions of the policy.
A professional is expected to perform their service with reasonable care and attention, so if he fails to meet the standards expected, or is perceived to have failed to meet them, by a client, a claim for professional negligence can result.
Professional Indemnity Insurance policies are claims made policies. This means that the policy is triggered when a claim or circumstance is made against you.This differs from most other insurance policies where they operate on an occurrence basis that is the policy is triggered when the insured event occurs.
The definition of a Claim and sometimes further defined by a policy as a Valid Claim differs from insurer to insurer and programme to programme. This is also where some insurers differ in the way that their policies respond to the changes in regulation around complaints and disputes.
The standard definition of a Claim under a Professional Indemnity policy would read something like; Claim means; a. Legal proceedings instituted and served upon the Insured, or b. Any threat or intimation that legal proceedings will be issued against the Insured. Further a Valid Claim would further define a Claim to be a claim which was notified during the period of insurance and arising out of the Professional Business of the Insured.
A Professional Indemnity policy provides cover for a claim for compensation arising from an advice from a Professional Business, or Insured Business or Business Description. The term differs between underwriters; however this is one of the most important parts to any Professional Indemnity policy. The policy will provide cover for the activities which are expressly contained in this phrase most commonly expressed on the schedule of insurance.
This description should be fully inclusive of all activities undertaken and include all areas of where revenue or fee income is generated. It is important to consider the activities which have been undertaken in the past, and ensure that the cover provided under the current policy will provide cover for past activities given the claims made nature of a Professional Indemnity policy.
A retroactive date is the earliest date after which losses may occur and be covered under a Claims Made liability policy. There are generally two types of retroactive dates which apply to all policies, a specified date, or an unlimited date. If the policy contains a specific retroactive date this means that any claims arising from an act, error or omission occurring before that specified date is not covered by the policy.
The most common specified date is “policy inception”. This is common for professionals who have been operating in business for a period of time and purchase Professional Indemnity for the first time. Having an unlimited retroactive date is the broader of the two, and means cover is provided for claims regardless of when the act, error or omission occurred.
The Limit of Indemnity is effectively the sum insured under the policy: it is a nominated value of cover the client has elected to purchase. The selection of an individual limit must be an individual decision. Some factors that an adviser must consider are: The product mix or types of advice undertaken; The demographics of your client base, for example a younger client base has potential for larger financial loss if a policy is not executed correctly; Peak risk versus Aggregate risk; A Limit of Indemnity will contain two types of Limit, a Limit Any One Claim, and a Limit in the Aggregate. The Limit Any One Claim is the maximum that the policy will cover for one claim or circumstance, and the aggregate is the annual limit of claims under any one policy period.