Professional liability insurance coverage protects professionals who give advice, provide services or produce designs. If a professional makes a mistake or is negligent in their duties, this can result in a financial loss for their client. In those cases, the client can come after the professional for the loss.
Even if a client’s financial loss is ‘perceived’ rather than real, the client can sue the professional. These situations also fall under the domain of a professional liability insurance policy.
Those needing professional liability insurance can include accountants, architects, financial advisors, consultants, designers, engineers, recruitment agencies, PR professionals, software developers, business analysts, construction professionals and more. While professional liability insurance isn’t required by law, people working in many of these industries need to have cover, as it will be a requirement of membership to professional bodies or trade organisations. For example, all chartered accountants in the UK are required to hold certain minimum levels of professional indemnity insurance.
According to NimbleFins, professional liability insurance covers defense costs (e.g. legal fees) as well as compensatory payments that a business must make to their client. It won’t cover most fines and penalties.
There are many common exclusions to professional indemnity insurance. For example, UK insurers won’t usually cover a claim if the financial loss is the result of terrorism, war, pollution and radioactive contamination.
Each policy will also have a set limit regarding how much can be claimed. This will either be classed as ‘any-one claim’ or ‘aggregate’. ‘Any-one claim’ sets a figure for the maximum amount that will be covered for each individual claim. An ‘aggregate’ policy sets a total limit for claims made against a company during the period of cover.
Because many experts are now reporting an increased number of litigation claims made against businesses, some suggest increasing claim limits to £1 million at a minimum.
Why do I need professional liability insurance?
Professional indemnity insurance is needed because no matter how diligent a company or individual is, mistakes can still happen.
Not only can professional indemnity insurance cover professional negligence, defamation and copyright infringement, but there are also some incidents that some would consider more unavoidable.
These can include:
Losing or damaging documents: Either while these documents are under the policy holder’s responsibility, or if they were lost or damaged at the client’s end due to something the policyholder had done, e.g., sent them a virus.
Confidentiality breaches: Where sensitive information is shared, potentially by a dishonest employee.
Acts or omissions of subcontractors.
Bodily injury: If a customer, their employee or other third party is injured due to a policy holder’s negligence.
Each policy is different, however, so be sure to check the policy wording to see what you’re covered for, and what you’re not covered for.
What is the difference between professional indemnity and public liability insurance?
Public liability is different from professional indemnity insurance.
Public liability insurance covers legal costs and compensation if a third party is injured or has their property damaged due to the policyholder’s business. Third parties can include a client, supplier, visitor to your business or other member of the public. The fault could be down to negligence on the business’s behalf, such as failing to mop up a wet floor and display ‘wet floor’ signage on a rainy day, leading to a serious fall by a third party walking in the business premises.
In addition to injury, public liability can also cover property damage. For example, if the wind was particularly strong during the rainstorm and blew a standing sign that had been placed by the front door into a nearby parked car, causing damage. The car owner could come after the business for negligence for leaving the sign out on a windy day or not securing it properly. In that case, a public liability policy could cover the damages to the car.
On the other hand, professional indemnity typically covers a clients’ alleged financial loss due to a business providing negligent or incorrect advice, service or designs. For example, if a consultant advises a client to follow a certain plan to grow sales, but the plan backfires and causes the client to lose sales, this could end up as a PII claim.
Professional indemnity insurance does not usually cover bodily injury, but it can if the injury is caused by the policy holder’s negligence, error, or omission.
Surveyors, for example, could cause injury if they give the wrong assessment of a building. With fears of injury or even death if the wrong recommendation is given, insurers have even become reluctant to insure those carrying out External Wall Surveys on tall buildings in the wake of the Grenfell Tower fire. It has led to the Government creating a professional indemnity insurance scheme to take on the risk.