Professional Indemnity Insurance

What is Professional Indemnity insurance?

A PI policy protects companies or individuals who, in the course of their business, provide professional advice or services to third parties. The provision of this advice or service may lead to claims for compensation if any financial loss has been suffered as a result of alleged negligence or omitted acts.

The policy provides for defence costs, lost income, and costs from investigating the complaint, as well as any compensation awarded if the defence is unsuccessful.

Policies are usually arranged on a “Claims Made” basis covering incidents occurring and notified during the period of the insurance. However, in many countries, it is possible to take action against suppliers many years later; for example, up to 6 years in the UK. For this reason, policies can be extended to provide protection against historical allegations of errors, poor advice or performance failures.

Why should a company take out a PI policy?

• When combined with other liability policies, a PI cover provides a firm or individual with a risk-free environment in which to operate. By taking away, or minimising the risk of facing severe financial penalties as a result of incorrect advice or incomplete delivery of services, you allow individuals or teams to carry out their duties to the best of their ability.

• A PI policy will help to attract and retain high calibre international staff who are unlikely to work with companies where everyday business risks were not adequately protected. The same will apply to potential Trustees or Non-Executive Directors that you are looking to bring into the business.

• Claims awards and litigation costs can be substantial and potentially ruinous to companies. It is common to see limits of €5m on policies. The policy premium represents excellent value against this degree of risk.

• The international business environment is becoming increasingly litigious, and with significant variations in framework regulations, even within the EU, the exposure to professional claims is increasing significantly.

• A PI cover is a legal requirement for certain professionals (depending on jurisdiction), such as lawyers, accountants, financial advisers, architects, healthcare providers (Medical Malpractice cover).

Even where PI cover is not a statutory requirement, it is often required under contract, particularly when working with any government or public office.

What does a PI policy cover?

A PI policy protects anyone who offers their knowledge, skills or advice even when not receiving a fee in return, from the consequences of those actions leading to a legal claim against them.

The policy does not normally provide cover against criminal prosecution, and there can be significant variations in cover provided particularly in connection with the definitions of “negligent acts” or “breach of duty”, but suitable extensions or alternative covers can usually be arranged. Similar extensions can be arranged for “Defamation” or “Breach of Warranty”.

Typical scenarios leading to PI claims include:
• Negligence
• Misrepresentation
• Violation of, or breach of, good faith
• Inaccurate advice
• Non-performance, usually connected to systems or procedures

How can we arrange PI cover?

As with all Professional Liability policies, cover varies significantly by insurer and by jurisdiction, so we recommend that you seek professional advice to ensure that your needs are fully protected, and at the right price.

Sovereign Insurance Services would be delighted to discuss your requirements, and assist you to choose the correct policy for your business.