It is always recommended that business owners add professional indemnity to their insurance policies so they can protect themselves in the event of a client deciding they have done the wrong thing in some way.
Professional indemnity insurance is the best way to make sure a mistake made in your business does not have too drastic an impact on your finances.
Here is an outline of what it is and what happens when you make a claim.
What is professional indemnity insurance?
Professional Indemnity Insurance covers sole traders and businesses for the financial consequences of mistakes, errors and neglect. It makes sense to have a policy in place so you don’t end up losing your business or home as a result of being sued for damages by a client.
An example of professional negligence could be a conveyancer failing to complete their due diligence and causing a client to have serious problems with a home they purchase. If the client believes the conveyancer or someone on their team breached their professional duties, they may enlist the help of a lawyer and make a claim for financial compensation. As a result, they may be entitled to financial compensation.
Professional indemnity insurance is designed to:
- Protect your assets and finances in the event of someone making a claim against you
- Pay for your legal defence
- Pay to compensate the suing party should you need to settle or be ordered to issue financial compensation (limits apply)
Professional indemnity insurance differs from public liability insurance in that it relates to professional conduct. Public liability insurance protects your business in the event of something being damaged or someone being hurt as a result of activities conducted by you and your team.
What happens during a professional indemnity issue?
If a business or individual wishes to make a claim against you, you will usually receive a letter or email from their lawyer outlining the details.
It’s not a good idea to pay up without taking steps to investigate what happened. You will need to work with your lawyer and the parties involved within your business to figure out the details and decide if you want to settle or dispute the claim.
You could be completely in the right but if a client wishes to make a claim, they have a right to do so. It can be a frustrating headache if you know you have done nothing wrong but is all the more reason to have good insurance.
How to make a professional indemnity insurance claim?
Your insurer is likely to request the following
- A completed claim form
- Any contract or retainer agreements you have with the claimant
- Details about the claim and when you first became aware of it
- Any information relating to the claim
- Information about the work completed
- Details of your clients concerns and allegations
- Information about other parties involved
- Any evidence to support your defence
When you make a claim, your broker will help you understand what the process is and who your legal representative will be. They will also explain how much you are covered for and whether or not you will have to prepare to accommodate any additional costs which are not covered.
Settle or go to court?
Your insurance covers legal costs but if a trip to court can be avoided the insurer may recommend doing so.
The process to settle a claim will involve drafting a response and corresponding with the claimant. If the representatives working for your insurer believe court costs will be high and a win is unlikely, it may be quicker and easier to pay a small amount rather than risking the time and expense involved with going to court.
If a payout is necessary, it will hopefully fall within the limits of your policy. Your broker can talk to you about the recommended amount of professional indemnity insurance you should have in place.
Protect yourself and your business
Ideally, you/your business will have an up-to-date professional indemnity policy that is paid in full, to have the right amount of cover (e.g. up to $5 million).
Your broker will work with you to ensure your policy:
- Reflects your business name
- Reflects your business activities
- Covers work done by any employees, freelancers or subcontractors
Not all professional indemnity insurance policies are created equal. You need a policy that is up to date, provided by a reputable insurer and certain to give you comprehensive cover in the event of someone making a claim against your business.
Let the insurance experts at KO1 Insurance Brokers help you to choose and sign up for a professional indemnity policy that reflects your needs and offers long-term protection.
Disclaimer: The information contained in this news post is general in nature and is intended to provide a general summary only and should not be relied on as a substitute for professional advice. Whilst the information is considered to be true and correct at the date of publication, changes in circumstances after the time of publication may impact upon the accuracy of the information.