When you build your business to help others, the last thing you expect is a legal claim against you. However, when you provide professional expertise or services, especially for a fee, you open the door to risk. The risk that your clients suffer a financial loss because of your negligent advice or services.

That’s where professional indemnity insurance can help.

So, here are five things to know about Professional Indemnity Insurance.

1. What is Professional Indemnity Insurance?

Professional Indemnity insurance, or PI insurance, is a policy designed to protect an individual, organisation or business providing advice or services, especially for a fee.

It provides the financial resources you need to respond to any claims made against you because of an error or omission in your advice or services.

Suppose a client uses your services. They then suffer a financial loss due to incorrect advice provided by your company. The client can claim against you. The professional indemnity policy will assist with the cost of defending the claim and the payout, if your business is found negligent.

Business man stressed sitting at desk


2. Who typically needs Professional Indemnity insurance?

The most common types of organisations and businesses that need professional indemnity insurance are:

  • Accounting Professionals
  • Legal Professionals
  • Real Estate Agents
  • Consultants
  • Brokers
  • Engineers
  • Architects and Design Professionals
  • Educators
  • Health and Fitness Professionals

That’s because these professions provide advice for a fee. Importantly, they can significantly influence the decisions and actions people take.

For example, suppose an engineer designs a building. Should that building collapse and harm multiple people, they can each make a claim. The PI Insurance policy can help cover the costs of the claim.

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3. What types of claims trigger PI Insurance?

Typical claims that trigger professional indemnity insurance could include the following:

  • Professional negligence, such as providing the wrong advice
  • A breach of a client’s confidentiality
  • Supplying misleading or unfinished work
  • Failing to provide a promised service
  • Leaving out important information
  • Defamation or dishonest behaviour
  • Violation of copyright or trade practices
  • Loss of a client’s documents or data
  • Loss of client’s money or goods

Businessman giving advice on legal documents

4. What’s covered by PI Insurance?

Professional indemnity claims can be expensive, time-consuming, and incredibly stressful. Typically, a professional indemnity policy includes the financial resources to pay for items such as:

  • Legal Advice
  • Legal Defence
  • Claims investigations
  • Reputational advice, such as public relations guidance
  • Payments awarded to clients for damages and settlements

Just because you have a professional indemnity policy, it does not mean your policy automatically covers you for everything. Always take the time to understand what is and isn’t included.

For example, not all professional indemnity policies include legal costs. So, suppose you have a claim against your business for negligent advice. You’ll be out of pocket if the policy does not include legal fees.

It’s vital to ensure you work with a professional risk and insurance adviser to set the correct financial limits within the policy. With the proper financial limitations, you should have adequate financial resources to cover the worst-case scenario.

While the cost of premiums can seem expensive, they are small compared to the cost of any legal defence fees and financial penalties you may incur.

Happy insurance broker talking to clients about their business

5. What will PI insurance not cover?

Like all insurance policies, there is often a list of exclusions. So, for professional indemnity, these typically include:

  • Contractually agreed on costs or expenses
  • Accidents or incidents that arise before your policy starts
  • Intentional damage or behaviour towards a client
  • Claims made against your business due to bankruptcy or insolvency
  • Bodily injury claims
  • Property damage claims

Person injured knee at work

It’s worth noting that some professions or situations may require cover for bodily injury or property damage claims that may arise because of your advice or design.

In that case, it’s essential to engage a qualified risk and insurance adviser. Your adviser will ensure the policy meets your business needs and negotiate an endorsement into the insurance contract on your behalf.

The endorsement is a special clause that ensures the insurance contract includes additional cover for items such as bodily injury or property damage claims.

Need advice on professional indemnity (PI) insurance?

Our experienced risk and insurance advisers use their extensive industry knowledge to build a risk profile for your business.

Using our fee-for-service risk review, you gain a complete picture of your current insurance program. Therefore, enabling you to identify areas of concern and confidently move forward.

Contact us today to learn more.

General Advice Warning: This advice is general and does not take into account your objectives, financial situation or needs. You should consider whether the advice is appropriate for you and your personal circumstances. Before you make any decision about whether to acquire a certain product, you should obtain and read the relevant product disclosure statement.

Clear Insurance Pty Ltd. ABN. 41 601 916 689. AFSL No. 548953.