Professional indemnity insurance is an insurance product that will protect you in the event that your business is sued by a client. This could happen if a client is unhappy with the work you’ve produced or professional advice you’ve provided. Even if you haven’t made a mistake you may still have to fight a claim.
If you’re a professional business that provides advice and services to your clients, PI cover should be seen as an essential consideration for your business insurance package.
It’s important that you feel confident in the quality of your work, but even with the best intentions accidental errors and disputes over quality can happen. If they do, professional indemnity insurance can help to protect you if claims are brought against you by a client. PI will help to put mistakes right and cover any legal costs.
Our guide to professional indemnity insurance (Video)
We’ve pulled together this short video to help you decide whether professional indemnity insurance is right for you:
Do I need professional indemnity insurance?
PI isn’t just for traditional legal or accountancy practitioners. Anyone who provides a professional service, gives advice, handles client data, or is responsible for intellectual property should consider taking out PI insurance. Businesses you may not expect to need it, such as green energy consultants, IT consultants, or coaches and trainers all have the potential to face a claim. Insurance might also be a condition of a contract that you undertake, or of a professional body that you belong to. If this is the case, then the level of minimum level of PI may be decided for you.
If you’re in control of your PI policy, then it’s crucial that it’s tailored to your specific business sector or needs. For example, in our experience, unintentional breach of a written contract to supply software or hardware is a common claim in the IT sector. And damage limitation cover is important for anyone working in media, marketing and PR, in the event you accidently leak confidential information ahead of a press launch.
What does professional indemnity insurance cover?
Professional indemnity insurance covers you in case you need to pay to correct a mistake, or to cover legal costs, if you make an error in your work. While this falls under cover for ‘negligence’, you should also consider a policy that offers cover for intellectual property, dishonesty, defamation and loss of documents too.
You would draw upon your professional indemnity insurance if, for example, an employee sends a gossipy email about a difficult client to a supplier and copies in the client by accident. You may also need it if your IT system fails causing you to lose some of your client data or documents, and they’re difficult and costly to retrieve it. A case for infringement of intellectual property rights could arise when incorporating copyrighted stock images without permission without asking for permission first.
PI insurance can cover you for all these eventualities from the start of your policy, but if you’re worried that work you’ve already done may need to be protected against a claim you can also get a retroactive date for your policy.
How much does professional indemnity insurance cost?
When you buy insurance, whether it’s for your home or your business, you’ll be asked how much cover you want to buy.
Sometimes, the answer is easy. For office insurance, it’s a matter of totting up the cost of replacing your items if they’ve been damaged or stolen. But for professional indemnity insurance, it can be harder to estimate how much cover you’ll need for your business. And because each business is unique, there’s no one-size-fits-all solution. But if you have to work out cover for yourself, here are a few things to consider:
The size of the contract
Another important factor to think about is the size of the client. How deep are their pockets? If they have the cash they may decide to sue you as a matter of principle, and you’ll need to make sure you can afford it.
As well as potentially being required to compensate your clients, there may be legal costs to pay for the investigation and defence of your case. Don’t underestimate how much this could potentially cost. Legal costs can run into the thousands if the case is complex.
Getting professional indemnity peace of mind
When you run your own business, the responsibility for getting things right sits firmly on your shoulders. While it may seem like a lot to consider, particularly if your business has never faced a claim situation before, it makes sense to get the right level of protection should the worst happen. This will ensure you have the appropriate legal support and the financial means to get your business back on track as quickly as possible.