You’re in the pub with your mates having a few drinks, a laugh, discussing the terrible state of football refereeing, when, inevitably, the banter turns to professional indemnity (PI) insurance.
OK – so it’s not something you hear much about, especially not in the pub. But you’ve got policies for employer’s liability, public liability, buildings & stock and the vehicles – surely you don’t need MORE insurance? Actually, there’s a reasonable chance you might, if you provide advice or professional services as part of your business.
Any business that is registered or has directors would be well-advised to arrange PI cover. Missed or wrongly filed statutory returns can give rise to costly legal proceedings.
Corporate regulation is increasing and regulators are more likely to investigate companies.
Generally, people are more aware of their rights and more likely to pursue them.
Obvious examples of professions requiring PI insurance are solicitors and architects. Both are fairly strictly regulated professions and the Solicitors Regulation Authority (SRA) and the Architects Registration Board (ARB) require members to have PI cover.
Less obvious perhaps are web developers, or engineers who design the systems they install or advise on repairs & maintenance.
Bookkeepers, accountants and tax or pension advisers, IT consultants, photographers should all consider PI cover.
Clients may require evidence of PI cover as a contract condition, but essentially it is protection for you and your business against the legal costs and consequences of mistakes made in the course of your business.
The key things PI insurance covers are :
- Negligence – mistakes or bad advice.
- Defamation – making false statements about others.
- Misuse of intellectual property – using copyrighted or otherwise protected material without permission.
- Breach of confidence – disclosing confidential or commercially sensitive material without consent.
- Loss of documents or data belonging to clients.
- Loss of money or property held on behalf of others.
By now, you possibly wish this had cropped up in the pub if you feel the need for a large brandy.
PI insurance covers the legal costs involved in defending proceedings and any compensation awards. However, as a matter of public policy, no insurance policies cover fines or the like.
There will usually be a policy excess – possibly as low as £250 – but the amount will depend on the individual business and the type of projects undertaken.
In relation to PI insurance the phrase “Directors & Officers Cover” often crops up. D&O is usually arranged by organisations with a more formal structure. The policy protects the directors & officers against claims for negligence in their management of the firm.
Such claims may be made by shareholders, customers, investors, staff, competitors or they may relate to breaches of statutory regulations such as filing company accounts or tax returns.
Deliberate acts and fraud are obvious policy exclusions.
The main policy sections are referred to as Side A, Side B and Side C.
Side A cover is to protect the personal assets of directors & officers in situations where the company cannot afford to, or cannot legally, cover the directors’ costs.
Directors and officers have personal liability, and even in limited liability structures, personal liability is unlimited.
Side B cover protects the assets of the company.
Policies for SMEs (small to medium enterprises) and non-profit organisations are usually Side A & Side B. However, there is increasing demand for Side A only cover, following some high-profile cases.
Side C cover is for publicly quoted companies.
PI and D&O policies differ from other policies in the way that cover applies.
Under most policies covering loss, injury or damage – eg vehicle, property, EL and PL – the loss is usually obvious at the time of the incident, or very soon after.
In a road traffic accident, it will be immediately apparent that there is damage to vehicles, injury to persons or damage to other property.
Under these policies the incident must take place – or “occur” – whilst the policy is in force, even though the claim may be received after the policy has expired. This basis of settlement is known as “claims occurring”.
However, the kind of negligence foreseen under PI and D&O policies may not become obvious for some time – eg inadequately designed foundations for a building may not be noticed for years.
These policies operate on a “claims made” basis. The policy covers claims made during the policy period, regardless of when the alleged negligent act took place.
If you have been operating without PI cover, it may be possible to get cover for previous projects you or your firm have undertaken.
PI cover is usually available in the range of £50,000 to £5m, but the amount depends largely on the type of business and the type of projects they undertake.
For example, a sole practitioner architect mainly dealing with extensions, conservatories and other relatively minor home improvements will not need the same cover as a large partnership designing massive civil engineering projects.
PI and D&O insurances are complex and the knowledge and assistance of a good insurance broker are essential to avoid potentially costly mistakes.
Contact HUBB to discuss the type and extent of PI or D&O cover you need.
Then, the next time the chat about the latest proposed changes to the offside rule begins to flag, you can skilfully introduce a Fun Fact about Professional Indemnity insurance.
Or not …