Six professional indemnity risks to your business you probably haven’t thought of
When people talk to me about professional indemnity (PI) insurance, the most common assumption is that it’s all about making mistakes. And it is – but not necessarily in ways they had anticipated.
Policy wordings vary, even from the same insurer – it’s a bit like cars. They all do fundamentally the same thing (tin box, wheel on each corner, get you from A to Z), but there are many different manufacturers, each one with different models (including special editions), and each model tailored to your precise requirements.
The risks below can be covered by a PI policy, so it’s worth checking whether yours actually does
1. When you accidentally say something you shouldn’t
I’m sure that you, or someone you work with, has at some point in their career hit 'reply all' on an email and then 'send' only to realise you’ve copied in someone you didn’t mean to.
It’s all too easy to lose or leave documents somewhere, send information by email, or be overheard – all by accident. Many PI policies will cover you for circumstances such as these.
2. When a client throws mud at the wall to see what sticks
When we receive a letter of claim that has been sent to one of our policyholders, it’s very common for said letter to contain a long list of complaints – for which compensation is demanded.
The hope is that our policyholder (or their insurer) will just give up and pay, rather than fight. Some of these 'claims' can be very spurious, but they all need to be handled.
PI policies will only respond to claims that are specifically covered – anything not covered by PI (e.g. property damage) will be left for the policyholder to resolve themselves. This can be difficult, time-consuming, and expensive to manage. It’s why some policies will fight the entire claim on your behalf. In the US, where this enhanced cover originated, they call it “sleep easy” cover – because it’s one less thing to worry about.
3. When a claim made against you gets into the media
A good reputation is hard to build but very easy to destroy. Given the choice between two suppliers, would you choose one which had recently featured in the media because of claims made against them by an unhappy customer?
But, what if those claims were false?
For small businesses, a reputational issue in the media often requires specialist PR advice and skills.
It’s worth ensuring you have a plan to deal with a media-driven crisis that minimises any damage to your firm. Some PI policies will include help from a professional firm, so it’s worth checking what you’re covered for if you feel your business is vulnerable on the PR front.
4. When you’ve not notified your insurer about a potential claim
The timing of when a policyholder should notify their insurer about the possibility of a claim is a fine point of detail that can be easily missed – it’s complicated by the fact that there is no standardised 'notification clause'. Getting it wrong could mean that an otherwise valid claim is rejected by your insurer.
'Many policies use a variation of the phrase 'may give rise to a claim against you'. What does 'may' mean? If there is a 1% possibility, that 'may' cause a claim – so technically you have to notify absolutely everything, when there is even a hint of displeasure such as an awkward meeting or phone call to discuss progress on a project.
Where do you draw the line? It could end up being a full-time job for you and your insurer. How can you know how your insurer will interpret that word 'may'.
Hiscox policies require you to notify us when something is 'likely' to lead to a claim, which means a greater than 50% chance. That is a significant increase in the threshold, reducing the burden for policyholders, and making it less likely that we will reject a claim simply because it fails the notification clause test.
5. When money goes missing
It’s an abhorrent thought that an employee could steal from the business, but unfortunately it does happen. If your business handles large amounts of cash regularly then you could consider a specialist fidelity policy to cover that risk. However, all businesses will handle some kind of financial transactions (paying suppliers, for example) so they all have an element of exposure.
There are two kinds of theft. The first is when an employee steals from the employer. This could be falsifying invoices, making payments from the business bank account into the employees account, or over-ordering products and keeping the excess from the order.
The second is when an employee steals from a client. This could be issuing fake invoices, with payment being directed to an account belonging to the employee.
In both instances, a PI policy may pay compensation to put right the loss – something many businesses are unaware of. There are often requirements for cover to be valid – for example two signatories on company cheques, so again, it’s worth checking your policy.
6. When a dissatisfied client refuses to pay your bill
You’ve completed a project and think it meets the brief. The client disagrees and refuses to pay your bill. What do you do?
If you take them to court, not only does that incur additional cost, but your client is likely to counter-claim and reject your work, and will probably never trade with you again.
In these circumstances, it is possible that your PI policy could pay your outstanding invoice to avoid triggering that counter-claim against you which could be more costly for your insurer to resolve.
Wordings can vary considerably, so you need to know what your policy covers you for. The examples above are instances of aspects of PI wordings worth looking for as they offer additional, valuable cover of which many policyholders may be unaware.