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What is Professional Indemnity Insurance?

this man knows what is professional indemnity insurance and applies it to his business

Money and time pressures are part and parcel of doing business. When deciding what’s worth your attention, professional indemnity insurance may be one area where you’re unsure about its value. It’s easy to be overwhelmed by the many different types of business insurance on the market nowadays,. So what is professional indemnity insurance exactly, and why do you need it?

To help clear things up, here’s Rapid Solutions’ explanation on what it is, why you need it, when you need it, and how you can get it.

What is professional indemnity insurance?

Professional indemnity insurance is designed for businesses that provide advice or a service to customers. It protects you and your employees against claims for damages, and the resulting costs, sought by third parties in relation to your advice/service. A claim may arise out of an act, omission or breach of professional duty (e.g. negligence) that occurred in the course of your business activities.

The exact cover offered by professional indemnity insurance will vary slightly from insurer to insurer, which is why it is important to read through your policy document thoroughly.

Generally though, it will cover a business for mistakes made while advising or servicing clients. In addition to providing cover for the costs resulting from the actual mistake made, it normally also covers the costs for legal investigation and defence if needed.

What is the difference between professional indemnity insurance and general liability insurance?

There are a lot of different types of business insurance available. Figuring out exactly what you need can be daunting. One of the most common areas of confusion is the difference between professional indemnity insurance and general liability insurance.

Professional indemnity insurance is related to cover for claims which are related to your professional duty. Conversely, general liability covers claims relating to your general duty of care. Think personal injury and property damage that happens whilst performing your work at a customer’s premises.

For instance, if you knocked over a bystander while working on a project site for a pest management job and they suffered a broken leg, the resulting claim would fall under general liability insurance. 

However, if you were negligent in your pest control paperwork and your client lost income or suffered property damage as a result, the claim would fall under professional indemnity insurance.

It is crucial to remember that professional indemnity insurance is conducted on a ‘claims made and notified’ basis. This means your current policy will handle any insurance claim made or notified during the current policy period. Regardless of when the issue occurred.

For example: You worked on a project in 2017 and the client subsequently laid a claim for damages on July 1 2020. It is the insurance policy that you have active on July 1 2020 that is relevant in responding. If your cover is in place and current, the insurer will handle the claim.

What if it expires or lapses?

If your professional indemnity insurance expires (or you cancel it) then you have no cover for any work performed after the date of expiry or cancellation. If you signed any contracts which require that you hold professional indemnity insurance, you will be in breach of contract.  

Sometimes, cover expires because you have forgotten to renew it or have missed payments without realising. Don’t let this happen – it exposes your business to claims. Read up on how letting your insurance lapse could cost you thousands.

Still a bit confused? Keep reading.

If I close my business, can I let my professional indemnity insurance go?

Once a company has closed or it has been sold to a new owner, previous clients can still claim for damages. These may arise from a wrongful act, error, or omission after the date has passed. That is, for work done by the previous owner (you).

Remember that ’claims made’ explanation. Obviously, you would still want financial protection against your prior work for peace of mind.

However, you don’t need to keep your full professional indemnity insurance. Instead, you can continue to protect yourself and your business by reverting to run off cover. This type of insurance generally has a lower premium and, for the period of run off, will protect you should a third party claim against you after your business is sold. You can take run off cover for one year or more.

When was the last time you checked your insurances covered you for everything you need? What about checking you have all the insurance endorsements required for the business activity you are conducting these days?

At Rapid Solutions, we’ll contact you 4-6 weeks before your policy is due for renewal, and follow up again when the policy is near expiry. Take action when we contact you and you can be confident you’re covered.

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