What does Professional Indemnity Insurance cover?

Professional Indemnity insurance is an important form of protection for businesses that provide specialist services or professional advice. It is designed to respond to claims against your business for losses as a result of actual or alleged negligent acts or omissions in the provision of your professional service or advice. PI Insurance will also assist with the legal costs associated with responding to or managing claims which are covered by the policy.

As a professional, people pay for your pearls of wisdom and expert services, whether you’re a master of accounting, a real estate sales gun, or a magical make-up artist, the chance of a claim occurring is real, no matter how good you are at your profession. Whether the alleged mistake happened or not, your client could take you to court for damages. And even if you are not guilty, the legal fees alone and lost days in court could cripple your business and force you to shut shop. Unfortunately, the risk of a professional indemity claim is part and parcel of being a professional.

Professional Indemnity insurance is designed to protect you from a wide range of potential risks. Even seemingly small errors, such as being a few centimeters off on an engineering calculation, could have an astronomical financial impact on your business – something that you’ve worked hard to build and something that is worth protecting. These claims can run into the hundreds of thousands or even millions of dollars. A hefty bill like that is very difficult to cover without the protection of the right insurance.

What actions could result in a claim?
All it takes is for one unhappy client to make an allegation regarding the advice or service you have provided for a claim to arise. Some of the common reasons why someone may lodge a claim against you include:

• Making an unintentional mistake
• Overlooking a critical piece of information
• Misstating a fact
• A client misinterpreting advice that you have given them, resulting in them suffering a financial loss

Guilty or not, the cost of defending an accusation of wrongdoing alone can quickly rack up a rather pricey bill, not to mention the time required for gathering evidence, attending legal meetings and potential court hearings, taking precious time away from your day to day business operations.

What will Professional Indemnity insurance typically cover you for?
Professional Indemnity insurance seeks to protect your assets, reputation and the contents of your bank account. Below are some of the main things your policy may provide cover for:

• Damages and claimant costs awarded against you
• Civil liabilities which may arise from but are not limited to:
• Providing misleading or negligent advice
• Breach of duty (confidentiality and other privacy issues)
• Defamation, libel or slander
• The loss or damage to documents
• Infringement to intellectual property (including copyright infringement)
• Related defence and legal costs of a claim
• The costs involved with investigating a claim including those by a professional body
• The cost of responding to a disciplinary inquiry
• Court attendance costs
• Public relations costs
• Bodily injury or illness caused from the professional services covered under the policy

What is typically not covered by Professional Indemnity Insurance?

• Intentional damage
• Any claims or circumstances that are known prior to the period of insurance
• Acts of fraud and dishonesty
• Accidental injury and property damage

What types of professionals need Professional Indemnity insurance?
Within New Zealand, it is compulsory for some professionals to hold and maintain Professional Indemnity insurance and these include:

• Registered Migration Agents
• Architects and Draftsmen
• Real Estate Agents
• Finance and Mortgage Brokers
• Accountants
• Bookkeepers/ BAS and Tax Agents

Other professions which often require Professional Indemnity insurance include:

• Allied Health Professionals
• Management Consultants
• Recruitment Consultants
• Engineers
• Marketing Consultants
• IT Professionals
• Nurses
• Building Inspectors
• Psychologists

Even if you don’t see your profession listed above, you should ask yourself if there is a possibility of a third-party claiming losses due to actual or alleged negligence in your professional services or advice. If the answer is yes, it might be a financially sound decision to protect your business and take out Professional indemnity insurance.