Professional indemnity insurance covers a defined list, and the exclusions are as worth knowing as the inclusions. It answers for the financial consequences of getting professional work wrong, and it does not answer for physical harm, for deliberate acts, or for redoing work you were paid for.
Professional indemnity cover definition: what it covers
Legal liability for financial loss caused by a negligent act, error or omission in professional work. The cost of defending the allegation, which on a technical dispute is frequently the larger part. Usually breach of confidentiality and, on many wordings, unintentional infringement of intellectual property. Often loss of documents and data belonging to a client.
What it does not cover
Bodily injury and property damage, which are public liability. Deliberate or dishonest acts. Fines and penalties imposed on you. The cost of redoing work you did badly, as distinct from the client's loss. Contractual guarantees you gave that go beyond reasonable skill and care, such as a fitness for purpose promise.
Does professional indemnity insurance cover breach of contract?
Partly. Where the breach is a failure to use reasonable skill and care, and the client loses money as a result, the claim is a negligence claim in contract clothing and is what the policy answers. What it does not answer is a guarantee you gave that goes beyond reasonable skill and care, such as a fitness for purpose promise, or the cost of redoing the work itself.
The conditions that matter
Prompt notification of a circumstance that might give rise to a claim, which means telling the insurer when you first know rather than when a letter arrives. Cooperation with the insurer's chosen solicitors. And no admission of liability, which is difficult advice to follow and is in every wording.
A worked example, because the words are abstract
A consultant is engaged to recommend a system. The recommendation is made without checking a constraint the brief named, the client buys and implements it, and eighteen months later has to replace it. Nobody was injured, nothing was broken, and the client is several hundred thousand pounds down. The claim is for that loss and for the cost of arguing about whether the constraint was really in the brief, and both of those are what professional indemnity pays.
Other questions people ask
Does it cover injury to a client?
No. Injury and property damage are public liability. Professional indemnity covers pure financial loss.
Does it pay to redo my work?
No. It pays the client's loss, not the cost of doing properly what you were already paid to do.
Are fines covered?
Generally not. Fines and penalties imposed on you are usually excluded, though the cost of a regulatory investigation may be covered.
When do I have to notify?
As soon as you become aware of a circumstance that might lead to a claim, not when a formal claim arrives. Late notification is a common reason for a reduced settlement.
Does professional indemnity insurance cover negligence?
Yes. Its core is legal liability for financial loss caused by a negligent act, error or omission in your professional work, plus the cost of defending the allegation.
Sources
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