No one goes to work intending to make a mistake. We all want to provide top-notch services to clients. However, mistakes can happen. If you're self-employed or a business owner, you could face accusations of negligence if you make a mistake.
This can have severe financial and legal implications for your business. It can not only cause distress, but concerns around legal costs, loss of income and damage to your reputation. This is where Professional Indemnity Insurance (PII) steps in to safeguard business owners, freelancers, and the self-employed.
In this guide we’ll outline PII, who needs it, what it covers, and how to set it up.
What is Professional Indemnity Insurance?
Professional Indemnity Insurance (also known as PI Insurance or PII), acts as a protective shield for individuals and businesses offering professional services. In essence, it covers the financial repercussions arising from claims of negligent professional services. PII not only addresses compensation claims but also extends coverage to legal fees associated with such claims.
Who needs PII?
The need for PII arises for individuals and businesses engaged in providing professional services. This includes:
- Solicitors
- Accountants
- Architects
- Financial advisers
- Chartered surveyors
- Healthcare experts
Please remember to consider PII if you're a freelancer, consultant, or self-employed. If your work involves handling confidential information, you could be open to claims of professional negligence.
Certain professional bodies and associations mandate their members to carry a certain level of cover of Professional Indemnity Insurance. If you're part of a professional association, check on their recommendations. If you work in a regulated profession, it's crucial to make sure that you have sufficient coverage.
What does PII cover?
PII plays a pivotal role in various legal situations. The coverage extends to:
- Professional negligence claims – if a client alleges that your services were negligent, PII covers the financial implications arising from such claims
- Data loss claims – in today's digital age, the loss of client data is a serious concern. PII steps in to cover the costs associated with data loss claims
- Poor business advice allegations – PII provides financial protection if clients claim that your business advice led to financial losses
What doesn’t PII cover?
While PII is comprehensive, there are certain exclusions to be aware of. Common exclusions include:
- Criminal acts – PII typically does not cover losses resulting from criminal acts or intentional wrongdoing
- Known claims – obtaining the policy before becoming aware of a potential claim is necessary to ensure coverage
- Property damage – unlike Public Liability Insurance (also known as PLI), PII does not cover damages to physical property; it's more focused on financial and professional liabilities
Is Professional Indemnity Insurance required by law?
Professional Indemnity Insurance is not a legal requirement. However, most professional institutes and associations require their members to have some form of Professional Indemnity cover. This is authorised and regulated through their rules and regulations.
Examples can include members of or businesses that are regulated by;
- Association of Chartered Certified Accountants
- The Financial Conduct Authority
- The Royal Institute of Chartered Surveyors
- Association of Accounting Technicians
The only insurance business owners must legally have is Employer Liability Insurance if they are an employer.
How much Professional Indemnity Insurance cover do I need?
This will depend on the service you provide and the degree your profession is subject to regulation. When estimating how much cover you require, ensure you take into account legal fees and potential loss of revenue due to reputational damage.
PII can provide peace of mind in the case you're sued for negligent work. It can also provide cover if you have made an error that costs your client money. If you have PII, you'll have the funds required to rectify both these situations.
How much does PII cost?
The cost of PII varies. The degree of professional regulation, the desired coverage amount, and the service provided are examples of some factors that are considered. When estimating the coverage you need, think about your typical client profile and the scale of the work you carry out. How big an impact could your negligence have on your client? What would that risk look like for you?
If working with a broker, they are likely to ask what your annual turnover is and question how high-risk you are. They’ll consider your profession, and whether you’ve made any previous claims. These things will impact the suggested level of cover, and the quoted price.
While cost is important, the peace of mind PII provides in case of legal challenges or errors is invaluable. It’s a good idea to speak with a specialist broker who can assess the market and secure appropriate coverage based on your situation.
Is Professional Indemnity Insurance the same as Public Liability Insurance?
A common point of confusion is the distinction between Professional Indemnity Insurance and Public Liability Insurance. The primary difference lies in the types of risks they cover.
Public Liability Insurance addresses the risks of injury to persons or damage to property caused by a business's operations. On the other hand, PII specifically deals with claims arising from professional errors and negligent performance. Whilst both are crucial for comprehensive coverage, they serve very different purposes in safeguarding businesses.
Can I claim Professional Indemnity Insurance as a deduction against tax?
The tax implications of Professional Indemnity Insurance depend on the jurisdiction and the specific circumstances. In the UK, businesses can deduct business insurance premiums, including those for Professional Indemnity Insurance, as allowable business expenses.
However, it's advisable to consult with an accountant to ensure compliance with tax regulations.
Get legal assistance from LawBite
When it comes to your business, safeguarding against potential risks is essential for long-term success. Professional Indemnity Insurance is a vital tool for mitigating the financial and legal risks of negligence claims.
It's highly recommended (and in some cases compulsory) for those involved in carrying out professional services. Business owners can make informed decisions and ensure the protection of their enterprises by understanding the coverage and cost factors.
If you find yourself unsure about where to begin, or if you have an existing policy that could use a thorough review by a legal professional, book a free 15 minute consultation with one of our expert lawyers. Alternatively, you can reach out to us directly on 020 3808 8314.
