Professional Indemnity Insurance (PII), sometimes called Professional Liability Insurance and known as Errors and Omissions (E&O) in the US is a form of insurance which could well save you and your business from financial catastrophe. Anyone who is self-employed or runs a business might need professional indemnity insurance. The regulatory bodies of many professions require PII as mandatory, but even if you are not obliged to have PII, you need to be very clear about the level of risk to which you may be exposed. Legal fees and compensation claims could run into thousands, and in addition, there is the lost income resulting from time spent defending an allegation of culpability.
What is Professional Indemnity Insurance (PII)?
PII is a form of business insurance designed to protect you from claims that your advice, designs or service have had a negative impact on the business or well-being of your client. This might be in terms of loss of revenue or in the form of damage to their reputation or an allegation that you have failed to provide the promised service. PII is designed to cover the cost of compensation.
Does your business need it?
PII is not a legal requirement, and it is therefore easy to assume that it probably isn’t necessary, but if your business or profession offers knowledge, skills or advice, you could be vulnerable to a claim from a client. Accountants, solicitors, architects, chartered surveyors, financial advisors, medical professionals, fitness professionals and teachers are all professionals whose advice, if judged erroneous or detrimental, could find themselves facing a compensation claim from a client.
The kind of businesses that might need PII includes IT companies, recruitment agencies, design companies, management and business consultants, marketing agencies and PR consultancies. Alternatively, indeed any organisation, the advice of which could direct the strategy of a client. There are many many businesses and self- employed people whose services, advice or expertise put them at risk of compensation claims, though they may not have considered this eventuality until it is too late.
How does coverage work?
The most important thing to be clear about is that PII will only provide cover for claims made during the period of insurance cover. This may seem obvious, but if anything, pertaining to the claim falls outside of the period of cover, then the claim will be invalid. Insurance would need to have been in place for the time at which the advice or service was provided as well as the time at which the claim is made. The insurance coverage will probably provide for defence costs but will not cover criminal prosecution. It is important that you accurately describe your business activities when applying for coverage and that you are aware of exclusions and limits of liability.