I’m not sure it’s a good thing to admit, but I have been working with businesses and their Professional Indemnity Insurance requirements for over 25 years!
If I had a pound from every client that had said they had no need for PI Insurance as they “Don’t make mistakes” and “In any case, we are protected by our Terms and Conditions of Contract”, then I would have retired long ago……
In reality, having secure procedures and contracts is excellent business practice. Still, sadly it won’t stop someone issuing a legal challenge or accusing you of making a mistake.
All of which takes time and expense to resolve regardless of whether the accusation has any grounds whatsoever!
A Quick Reminder – What is PI Cover?
Professional Indemnity Insurance provides indemnity against legal liability and defence costs following acts (or allegations) of professional negligence following advice or services provided by your business.
Cover is based on your requested level of indemnity and issued on a claims-made basis.
This means you need to have had cover in force when the advice or service was provided, as well as when the claim (or allegation) is made against you.
Cover For Mistakes Or A Mistake Not To Have Cover?
Yes, the basic premise of PI Cover will protect your business against mistakes which cause a financial or physical loss to your client, for example – An Accountant provides incorrect advice on tax planning or misses the deadline on a client tax return.
However, a comprehensive Indemnity policy reaches far beyond basic negligence cover, adding true value and peace of mind to your business by offering full Civil Liability protection.
What this effectively means is that the policy will respond to any civil challenges which are not excluded in the policy conditions.
The majority of such issues tend to form accusations’ or allegations’ for breach of contract.
When Allegations Speak Louder Than Words!
Most business transactions revolve around a contractual arrangement.
While you may believe that your standard conditions are watertight, this does not stop clients challenging interpretation or additional verbal agreements which they believe have not been met.
The most common occurrence is that the client refuses to make payment for services provided as they are dissatisfied, or do not believe contractual obligations have been achieved.
Our partners, Hiscox, reported that 60% of all PI claims received in 2012 in the Technology sector were sighting an allegation of contract breach.
Now, in some cases, it might be that the allegations are entirely ungrounded and that it is merely an attempt to withhold payment.
Still, without PI cover, you would need to instruct your own solicitor to handle the process on your behalf, which will cost time as well as money.
Reputation is King
Brand and reputation are critical to any business, the ability to pass negligence allegations to Insurers to handle will ensure that the process is dealt with promptly reducing the potential for any mudslinging.
In cases where the loss is genuine and accepted, the ability for your insurer to manage the process on your behalf and distance you from the process can often enable companies to maintain ongoing business relationships during, and post, the incident.
Duty to Defend
Insurers will often work on a duty to defend basis. This means that they will deal with an allegation in its entirety, even if some elements of the claim are not covered under the policy.
This is particularly useful if you have agreed on additional contractual obligations such as a trigger penalty clauses or where a significant policy excess has been agreed.
What To Look For In Your Policy
When you Compare Professional Indemnity Insurance policies, as with any purchase, there is a myriad of options. While cover must be competitive, some budget policies will significantly restrict cover.
For example, it may exclude any breach of contract claims. As such, we would suggest you review the following:
- Full Civil Liability Cover (which includes breach of contract challenges as well as Libel and Slander protection)
- Defence Costs in Addition (ideally you do not want a policy whereby legal and defence costs eat into your limit of indemnity as these can swiftly swallow up your sum insured limit)
- Any One Claim Limits (A policy issued on any-one-claim limits means that the indemnity cover applies individually to each-and-every claim. Some basic policies will use an aggregate limit whereby the limit applies to the cover across the period of insurance. This is fine, but should you receive multiple losses from several clients you could find yourself severely exposed. This may seem far-fetched, but a loss linked to an area of advice can quickly cause a chain of similar claims from other clients.
- Policy Jurisdictions & Geographical Limits - In today’s global world you may find that you are dealing beyond the UK boundaries. If this is the case, ensure that your policy provides protection for work carried out in required territories. If you have assets in global locations, you should also pay specific attention to your policy jurisdictions.
FREE Business Insurance Review
Insync Insurance specialises in cover for Professional Risks and offers a free business insurance review with one of their expert Gurus.
You can book a review online at a time that suits YOUR diary, alternatively, call us on 0330 1240730, we would love to hear from you!