Professional liability insurance – also known as professional indemnity cover – may not be compulsory for your sector. But it could be an investment in risk management worth considering.
This cover offers protection against legal costs for businesses that give advice or services for a fee. Typically, accountants, architects, IT specialists, marketing consultants, lawyers, bankers, builders, financial and business advisers, doctors and many other professionals who contract their services would have this insurance.
It’s important to know that general liability cover would not protect your business from claims because of negligence, mistakes, misrepresentation or, for medical and healthcare professionals, malpractice. That’s where professional liability insurance comes in to bridge the gap. This article covers a range of scenarios where you may need such cover.
What happens when you give the wrong advice?
Mistakes, whether honest or careless, could lead to a business giving incorrect advice to its clients. Minor errors might be easily fixed, but others could have serious consequences for the businesses of the client and the professional services firm.
For example, if one of your clients takes your negligent or incorrect advice and directly suffers a financial loss, they could sue for professional negligence. Such a case is a test of your ‘duty of care’ to that client. Your duty of care is a legal responsibility to ensure your business carries out its services responsibly, adequately and safely to prevent harm or damage.
When could a professional negligence claim arise?
These scenarios could trigger a professional negligence claim against your business regarding your professional services:
- Mistakes, errors, or sub-standard work that led to harm
- Inaccurate course of actions or evaluations
- Unqualified advice that your employees give despite them lacking the experience and qualifications
- Omissions, i.e. not acting when you were reasonably expected to do so
- The wrong treatment
- In the case of an architect-as-project manager, for instance, when their subcontracted geotechnical engineer designs faulty building footings that fail
If a client’s legal claim against your services or advice is successful, and you don’t have insurance, you could face significant financial hardship. Your personal assets and possibly your home might be at risk, such as if a court awards hefty legal costs against you.
Assessments before deciding on a policy
Conduct a risk assessment of your business to understand your professional liabilities. Factor in your business size, complexity, scale and the financial resources you can call on if a client claims against you. Your state or territory government might recommend professional indemnity insurance based on your business type.
To work out your potential liability, estimate:
- Worst loss scenario per client
- Total possible number of claims a single client could lodge
- How many claims you could expect during your policy period
Your industry may have compulsory minimum requirements for policy wording and standards of cover. If you contract to a larger business or government agency, it may stipulate coverage limits, too. Here’s an example of the Victorian Government’s requirements for architects working in that state.
What PI should cover?
Next, consider how well a policy matches your needs by looking at:
- Who’s providing the cover? Are they suitable
- Minimum sum insured
- Whether or not the sum insured excludes defence costs, official investigations and inquiries
- Excess
- If the policy will cover you for claims about your past work
- Cover for all work and everyone affiliated with your practice, or are limits imposed
- Protection against defamation, document loss, fraud, dishonesty, breaches of confidentiality or copyright, not meeting a contractual requirement
- Minimum length of coverage before you can opt for run-off cover
Most professional indemnity policies don’t cover property damage and bodily injury claims.
How to be confident you’re covered
Unfortunately, you could offer exemplary service, but you have no control over an unhappy client claiming against you, even if there’s no merit to their issue. Even if your business does not contest a claim in court, the public could see that as admitting guilt. Expect your business reputation to suffer.
Discuss your best-fit policy options with us. We can help spot any gaps in coverage and find a tailored policy to suit your unique business and its risks. We can also help you regularly review the cover, particularly if any circumstances have changed.