What professional indemnity covers

What professional indemnity covers

The past decade has seen big changes in the litigation world. Not only are the numbers of cases against SMEs continuing to increase fairly rapidly, but settlement times are also being stretched, often taking up to five years for a resolution to be reached. Added to Australia’s changing litigation landscape is the additional complexity that comes with occupations that didn’t exist a decade ago (web designers and developers, social media specialists, app developers, data miners, and so on).

As you can imagine, any business that provides a paid service to the public is fair game for litigation, which is why now, more than ever, SMEs need the protection of Professional Indemnity Insurance. Whilst this type of insurance policy is only one of a suite of policies SMEs need to reduce their overall risks, it is no less important to their ongoing success.

What types of litigation are covered by Professional Indemnity Insurance?

Essentially, Professional Indemnity Insurance covers against claims of alleged or actual negligence occurring during the performance of a professional duty. Generally, these claims focus around giving people incorrect advice or the client misinterpreting the advice given to them. It can also include instances when an unintentional mistake has been made, whether that’s overlooking a critical piece of information or misinterpreting a fact.

These alleged acts of wrongdoing feed litigation, because as a professional, you should not make mistakes that result in a loss to your client. As mentioned above, the number of occupations that can benefit from Professional Indemnity Insurance continues to increase, because the number of services people demand have increased.

Professional Indemnity Insurance has always been essential to lawyers, accountants, builders and real estate agents for example, but now landscapers, wedding planners, life coaches, cloud engineers and digital specialists have also been embraced by the world of litigation.  The only way to reduce these litigation risks is to either never make any mistakes or to invest in Professional Indemnity Insurance.

All it takes is one unintentional mistake to create an unhappy client who talks to a lawyer and a claim against you begins. The result can be a long drawn out litigation process that damages your company’s reputation and results in not only settlement costs, but also court costs and lawyer’s fees that can easily devastate your business.  Professional Indemnity Insurance is designed to reduce these costs and help you to weather the litigation storm.

What costs are covered by Professional Indemnity Insurance?

This type of insurance cover is essential for SMEs in the service industry. Costs covered by this insurance policy include, but are not limited to, the following:

·   Damages and court costs awarded to the litigator and against your company

·   Costs of investigating the alleged claims

·   Defence and legal costs of defending against these claims

Without a doubt, the increasing complexity of the litigation landscape in Australia means that any SME operating within the service industry require Professional Indemnity Insurance. If you are not sure what cover you need in your line of work, talk to an insurance specialist today.

General Advice Warning

The information provided is to be regarded as general advice. Whilst we may have collected risk information, your personal objectives, needs or financial situations were not taken into account when preparing this information. We recommend that you consider the suitability of this general advice, in respect of your objectives, financial situation and needs before acting on it. You should obtain and consider the relevant product disclosure statement before making any decision to purchase this financial product.

Professional Indemnity Insurance

Professional Indemnity (PI) Insurance isn’t just limited to typical ‘professions’ such as accountants, engineers, lawyers, doctors and architects. Essentially, anybody providing advice or consultancy services for a fee has an exposure that needs to be considered.

Professional Indemnity Insurance

What is Professional Indemnity Insurance?

If you or your business provide professional advice or services, then you are likely to need professional indemnity (PI) insurance.

This insurance provides and pays your legal defence costs in the event that a customer complains that they followed the advice, it was negligent, and they suffered a financial loss, even if there is no real basis for the complaint. If there was negligence, PI insurance will also pay any damages awarded by the court.

Typical professionals that purchase Pi Insurance include real estate agents, construction consultants, healthcare or allied health, IT consultants, lawyers and doctors.

Without Professional Indemnity Insurance, you or your business could be faced with having to organise your own legal defence, pay potentially large legal bills,
as well as pay damages awarded by the court.

The average claim amount is over $100,000 for legal costs, expert reports, and damages, so it can be a large amount to have to find quickly.

Why is Professional Indemnity Insurance important?

Professional indemnity insurance is mandatory for many professions and required to be in place before starting a business. It’s recommended that you check with your association or insurance adviser to find out if PI cover is compulsory and the sum insured required.

For other professionals, although this insurance cover may not be compulsory, it’s an easy way to protect yourself and your business from large financial losses.

Even with the best training or risk management, people still make mistakes, contractors can provide an incorrect specifications or advice incorrectly understood.

It also worth noting that the cover provided by professional indemnity is different from public liability insurance. Public liability insurance covers defence costs and any damages relating to personal injury caused to people or damage to their property. This is different to financial loss caused due to an architect placing walls in the wrong location on plans or an IT professional recommending the wrong software and loss of potential customers to the business.

What does Professional Indemnity Insurance cover?

The exact cover will depend on your occupation and scope of activities. Broadly speaking, Professional Indemnity insurance covers any negligent act, error or omission relating to:

Misleading, inaccurate or negligent advice; breach of confidentiality or privacy;
Breach of consumer, competition, and fair trading laws;
Loss of documents;
Infringement of intellectual property rights;
Malpractice, misdiagnosis, failing to order the appropriate tests, failure to treat;
Defamation, libel or slander; Disciplinary proceeding costs; Claim investigation costs, including expert reports;
Public Relations costs;
Legal defence costs; and
Payment of damages.

As you can see, professional indemnity is a complex insurance with a wide range of cover options. At Insurance Advisernet, our authorised representatives are professionals who can work to understand your business and provide options to manage your professional risks and recommend insurance cover.

Frequently Asked Questions

● Who needs professional indemnity insurance?

Anyone that is specially trained, provides advice or service, and is a member of an association or profession can obtain this type of cover.

Real Estate Agents, construction consultants, engineers, healthcare or allied health professionals, designers, lawyers, IT consultants and doctors all need professional indemnity insurance, in some workplaces or industries, it is mandatory to have this cover. Even if not mandatory, this insurance is important to protect you and the business from having to pay significant legal costs, as well as damage, if found to be at fault.

● How much does professional indemnity insurance cost?

Professional indemnity covers you or your business for legal costs and any damages if there is an actual or alleged act, error or omission that causes a financial loss to a client or customer.

The three main items driving premiums are;

Your industry, for example, construction, IT, or medical, some are at higher risk than others;
The scope of your business activities, for example, a fire engineer or an IT engineer, the turnover/ revenue and number of employees or contractors; and
Prior claims experience, the more claims or lawsuits, the higher your premium (and excess) are likely to be;

● What is the minimum professional indemnity insurance?

The amount of Professional indemnity cover depends on:

your occupation and potential for financial loss to the customer if there was negligent advice;
any mandatory requirements of your association; and
the amount of cover that you chose, based on your level of risk, as well as the cost of the insurance.

Because different professions present varying levels of complexity and risk, we would recommend talking with your insurance adviser, they are professionals who can work to understand your business and provide you with options to choose from.