If your business provides services or advice of any kind, then you run the risk of one of your customers being dissatisfied. And if they’re sufficiently motivated they could bring a damages claim against you and that could involve all sorts of negatives. Here’s an outline of the sorts of situations where this could happen and how you can protect yourself.
Professional indemnity (PI) insurance is a form of insurance cover that protects your business from the impacts of dealing with a dissatisfied customer, whether they bring an action or just threaten to bring an action against you, or broadcast their opinions in a way that damages your business’s reputation. It is also a mandatory requirement for some occupations or industry sectors including
- It professionals
- recruitment agencies
- fitness professionals
- teachers or tutors.
Sometimes people confuse professional indemnity with public liability, but where public liability applies to people outside your business sustaining injury or damage to their property as a result of your activities, PI refers to services that you provide to your clients.
In the case of PI, the term ‘professional’ doesn’t just refer to white collar occupations such as doctors, lawyers or accountants, it applies to anybody who sells a service based on their expertise and includes sole operators such as therapists, instructors, skilled tradespeople and consultants. The size of your business isn’t a factor.
When do you need professional indemnity insurance?
Claims are usually based on allegations of negligence or claims of malpractice or professional misconduct – such as giving inappropriate or misleading advice or performing an action that has unintended consequences. Copyright, intellectual property or privacy violations, or failing to meet terms of consumer or fair trading laws are other potential legal grounds.
Their issue may be valid – you or one of your staff might have forgotten or overlooked something that ended up costing or hurting them in some way – or the fault may be on their side. Some people don’t follow instructions, others may have unrealistic expectations.
The cost of defending a legal claim can be a serious drain on a small business, let alone what damages might be awarded. Importantly PI covers legal costs, whether the case goes to court or not, as well as paying damages or settlement outside of the courts.
Settling with whoever is bringing claim, whether they are right or wrong, can help to limit reputational damage, which can quickly spiral out of control if media, including social media, is involved. Fortunately PI covers damage limitation expenses as well, such as engaging a public relations professional.
Do your groundwork
Before you embark on obtaining PI cover there are a number of things to think about.
How much cover do you need?
- If PI is a regulatory requirement for your occupation you’ll need to check the governing body guidelines. Some contracts for services also specify the level of cover that you must have for legal compliance.
- Be clear about the people and the business entities (if you have multiple operations) you need your PI to cover. You have a duty of disclosure to provide all relevant information.
- If your field is highly specialised you may need your policy customised or have endorsements added to meet your needs.
- Similarly you need to understand what exclusions apply so you know what you’re not covered for.
- Also consider how much excess you are prepared to carry before your insurance kicks in, bearing in mind that this could help to reduce your premium cost.
Once you’ve gone over your business’s particular needs with these pointers in mind you’ll have a clear idea of if you should get PI insurance and why.