What is Professional Indemnity Insurance?


Professional indemnity insurance – sometimes also called errors & omissions insurance – is a type of liability insurance.

This type of insurance can be bought as a stand-alone cover. It can also be bought as part of a combined small business insurance package policy.

Professional indemnity insurance protects professionals against compensation claims that are made against them by third parties who allege that they have suffered a financial loss as a result of the professional’s professional negligence (also known as bad advice). It can include cover for cases of libel and slander, unintentional breach of confidentiality, infringement of intellectual property rights, dishonesty of employees, loss of documents and errors made by previous partners and firms.

It also provides a legal defence for the policyholder in the event of a compensation claim and pays for the cost of that legal defence and any associated expenses.


Compensation claims

Mistakes will be made no matter how experienced, careful or well qualified we are. That’s just a fact of life. And another fact of life is that although some of those mistakes can be easily rectified, some will cost someone else money and at that point, the person in question will be looking to us for compensation.

Those compensation claims can be expensive. Like all types of liability insurance, it’s not uncommon for a compensation claim to result in a six-figure compensation amount and some claims can cost considerably more. Being uninsured if such a claim is made would cause most businesses to struggle, and could actually result in some having to file for bankruptcy.

Professional indemnity insurance protects you because it pays any damages awarded if you are found legally liable for a third party’s losses due to your professional negligence.


Legal defence

As well as paying any damages awarded against you, professional indemnity insurance is also essential in the event of a compensation claim being made against you because your insurer will defend the claim on your behalf.

Professional indemnity claims can involve complex legal arguments and this means that they are complicated to deal with. A professional indemnity insurer’s claims team will be legally trained and will be keeping up to date with the constantly evolving legal case law surrounding this area of the law on a regular basis. Having a team of people who have been specifically trained to deal with such claims means that you don’t have to navigate the legal maze and can concentrate on running your business instead.

Complex legal arguments also usually mean large legal bills. Even if a compensation claim that has been made against you is successfully defended, the cost of the defence could be substantial and it’s not always possible to recover all of these legal costs from the person that made the claim against you.

Knowing that your professional indemnity insurance will cover these costs gives you peace of mind because you know that even if your defence is successful, the legal bill won’t be a problem.


Who needs professional indemnity insurance?

Often, having professional indemnity insurance is a requirement that you need to comply with as part of your membership of an industry body. Some regulatory bodies will also insist on it for people working in certain professions.

In addition, having professional indemnity insurance can be a specified as a requirement in your contract with one or more of your clients. What this means is that if you don’t have professional indemnity insurance, the number of projects that you’re able to work on is a lot more limited.

However, anyone acting in a professional capacity should have professional indemnity insurance due to the potential for a compensation claim being made against them and the potential for any compensation claims to end up costing a significant amount of money. This includes:

  • Consultants
  • Designers
  • Architects
  • People working in IT
  • Accountants and bookkeepers
  • Private tutors, including fitness trainers etc.

In short, it’s advisable to make sure you have professional indemnity insurance in any role where you may be giving advice or handling sensitive information, in order to protect yourself and your business.

© Copyright 2018 Henry Seymour | Henry Seymour & Co (Barkdene Ltd) is a member of the British Insurance Brokers Association, Membership No. 6156 and authorised and regulated by the Financial Conduct Authority, Registration Number 303965. Registered in England No 1842617 Insurance Brokers. All rights reserved.
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