Mistakes happen. After all, we are only human. However, mistakes can prove costly if you aren’t properly prepared. Professional indemnity insurance, also called professional negligence insurance, is coverage for small businesses that protects against claims from their clients.
What is Professional Indemnity?
Professional indemnity is negligence that occurs when a professional (accountant, lawyer, realtor, insurance agent, financial advisor, etc.) declines to perform the professional obligations or duties that they were hired by their clients to fulfill. When a professional agrees to perform professional services for their client, the hired professional must exercise “reasonable care” in providing these services.
Reasonable care is defined as “the degree of caution and concern for the safety of the self and others an ordinarily prudent and rational person would use in the same circumstances.” To avoid a claim of professional negligence, the professional must provide the same standard of care professionals acting under similar circumstances would.
What is Professional Indemnity Insurance?
Professional indemnity insurance is designed to protect businesses that provide services based on their expertise. Even the most experienced and thorough professional service providers can make a mistake. These mistakes can lead to clients taking legal actions against you.
Professional indemnity insurance helps protect businesses from unsatisfied clients. For example, if you make an omission in your work, or provide ineffective business advice, your client may sue for professional negligence.
What Does Professional Indemnity Insurance Cover?
Professional indemnity insurance commonly covers negligence, copyright infringement, personal injury, and more. This can include damages caused by services a professional provided or services they should have provided.
Generally, professional indemnity protects against legal actions and financial losses associated with any of the following:
- Professional oversights and mistakes
- Services provided (or not provided) that result in client damages
- Claims of negligence
- Breach of contract
- Copyright infringement
- Claims of slander or libel
Examples of Professional Indemnity
Examples of professional indemnity can vary based on your specific industry and services provided. General examples of professional indemnity or negligence include:
- An accountant who fails to provide services at the level expected of a reasonably competent accountant resulting in damages to the client.
- An architect responsible for designing a building that proves to be unsafe resulting in damage or financial loss to the client.
- A lawyer who fails to provide services at the level expected of a reasonably competent attorney resulting in damages to the client.
- A client sues your flower shop after you delivered the flowers to their wedding late.
Why would you need Professional Indemnity Insurance?
Professional Indemnity Insurance is important because you save a lot of time and money while defending against a claim as you could be held responsible for your action/advice as well as for those of your partners and employees.
The Policy safeguards your business through cover against claims as well as legal costs, which allows your business to confidently continue its operations. If there is a sincere claim against you, insurance companies along with your insurance broker will provide the proper procedures for you to represent yourself in the correct manner. This allows you and your business to prepare all the required legal documents if you were to go to court.
When your business relies on the advice you give, Professional Indemnity Insurance is extremely critical to move forward with your business. From a risk management perspective, it helps you tighten your business and the manner in which the business provides advice.
Of course, this is a very specific and complicated type of insurance and you’ll need the help of a knowledgeable broker throughout the whole process; Starting with providing options and advice, selecting the most suitable policy, the inception of the policy, and keeping you updated whenever there are amendments or endorsements or claims.
Who Needs Indemnity Insurance?
Although many businesses can benefit from professional indemnity insurance, you should consider professional liability coverage if your business provides:
- A professional service (eg., lawyer, accountant, real estate agent, insurance agent, etc.)
- Regular professional advice for clients
- Contractual services to clients
Many small business owners fail to recognize the importance of insurance to protect their needs. Accountants, restaurant owners, interior designers, advertising agencies, graphic designers, IT professionals, insurance brokers, and so many more.
How Much Does Professional Indemnity Insurance Cost?
The price of your professional indemnity insurance can vary depending on a variety of factors. For example, if your business is in an area more prone to professional indemnity claims, such as a legal firm.
The cost of your policy will vary based on the following factors, including:
- Amount of coverage
- Number of employees
- Prior claims experience (if you’ve had to file any previous claims
How Much Coverage Do I Need?
Professional indemnity insurance typically has a coverage limit. This limit established the maximum amount your insurer will pay toward a covered claim. Any financial loss that exceeds your coverage limit is the responsibility of the policy holder. Working with your insurance professional, you’ll determine the exact amount of coverage needed to protect yourself if a client takes legal action for professional negligence.
Your coverage limits will take the following into consideration:
- The size of your business
- How many employees you have
- The industry of your business
- Business location
- The services your business provides
- History of previous claims for professional negligence
Protecting Your Interests
Understanding how professional indemnity insurance coverage will protect your business can help you be prepared in the event a client takes legal action against you for professional negligence. At Petra, our team of insurance professionals are here to help you protect your interests – both personal and professional.