Professional indemnity insurance
What is professional indemnity insurance?
Professional indemnity insurance, also known as professional liability insurance (and sometimes PI insurance), covers the liability of Australian professionals who provide advice or services to other businesses or individuals.
This type of business insurance is risk management for the company if you give the wrong professional advice to a client, which leads them into trouble, or an employee could make a mistake in their service that negatively impacts a customer.
Should you make a mistake in this advice or service, professional indemnity insurance could provide you with financial protection and may help cover defence costs in the case of legal action.
What does professional indemnity insurance cover?
Professional indemnity insurance policies can provide peace of mind and cover your business against claims arising from (actual or alleged) negligent acts, malpractice or omissions you may make in providing professional services and advice. Your cover usually includes compensation, legal fees and investigation costs.
Typically, professional indemnity insurance can financially cover:
- Breaches of duty, including claims for privacy breaches like breaches of confidentiality and fiduciary duty, as well as professional duties that have been overlooked
- Damages due to the dishonest and negligent actions of employees
- Breaches of trade practices and fair-trading acts
- Defamationcases arising out of professional advice or services
- Public relations expenses to help protect your business’s reputation.
Be sure to read the policy wording in your policy’s Product Disclosure Statement (PDS) to know exactly what you’re covered for. Also, check the Target Market Determination (TMD) to determine whether the policy suits your business.
Professional indemnity insurance exclusions
All professionals should understand their policy’s exclusions, so they know what their insurance coverage limits are. Typically, policies will not cover claims arising from:
- Illegal acts
- Punitive and exemplary damages (when a judge has found a professional to be exceedingly negligent)
- Intentional damage, which generally includes any acts, errors or omissions from the insured professional that are intended or could reasonably foresee loss, injury or damage caused to a third party
- Any claim relating to asbestos
- Employee injuries sustained while working or carrying out your business’s activities (this would be covered under workers’ compensation insurance)
- Public liability claims.
Why you should consider professional indemnity insurance
Despite your best intentions, no person or business is immune to making mistakes. That’s why many associations require or recommend that professionals be covered with industry-specific professional indemnity insurance.
So, what can go wrong? Some common examples of breaches of duty and professional mistakes can include:
- A graphic designer creating content similar to a copyrighted design, resulting in legal proceedings.
- An accountant auditing a client’s account incorrectly, resulting in a penalty and financial loss for the client.
- An accidental omissionin providing professional advice resulted in a critical deadline being missed.
How much does professional indemnity insurance cost?
The cost of professional indemnity insurance can vary significantly based on your profession, business activities, company size, and the level of coverage that you choose. Before purchasing a policy, always get a few quotes from a professional indemnity insurance broker or different business insurance companies.
Whether you’re a freelancer or run a small business, we can help you compare professional indemnity insurance.
Your type of business and its services will affect the level of professional indemnity insurance you may need. Therefore, providing all the information you can about your business is vital when completing a quote and obtaining cover.
Have the following details handy when completing a quote:
- Contact details
- Business details (e.g. the total number of employees)
- Financial information (e.g. annual revenue).
Additionally, be sure to disclose any past complaints or claims made against you to your potential insurer. Even if you’re doubtful, it’s still best to disclose any information you can, as any omissions of past claims (intentional or unintentional) can invalidate or limit your cover.
Errors and Omissions (E&O) insurance
An errors and omissions insurance policy is a liability policy that helps protect businesses and professionals from the financial fallout of mistakes, oversights or bad advice while providing their services or products. It covers court costs, attorney fees and settlements if a client sues for claims of negligence, errors and omissions in the services or advice provided.
Error and omissions policy is a vital protection for service-oriented businesses or professionals whose mistakes could lead to a client’s financial loss. E&O insurance is a subset of professional indemnity insurance, specifically focusing on protecting against claims of mistakes, negligence or oversight in a professional context. It’s an essential risk management tool that ensures business continuity, protects from legal costs and provides a safety net against claims that could otherwise be financially devastating.
Difference between E&O insurance and professional indemnity insurance
PI Insurance is a broader form of general liability insurance that overlaps with E&O insurance but extends further. It covers errors and omissions and protects against a wider range of claims, such as negligent advice, breach of duty, and malpractice.
While E&O insurance focuses specifically on mistakes and omissions that impact a client’s financial situation, PI insurance typically provides more comprehensive coverage, including other professional missteps that could result in legal or financial liability.
What other types of business insurance should you consider?
Public and product liability insurance cover
Suppose your business is found liable for the bodily injury, death, loss, or property damage to a third party. In that case, public liability may cover your legal fees and the compensation you’re ordered to pay.
Meanwhile, product liability insurance can cover the associated legal fees and compensation awarded if your business’s products cause your customers harm, lose, or damage.
Cyber liability insurance
If a data breach or cyberattack hits your business, cyber liability insurance can help cover the costs of legal fees, notifying your clients, and crisis management.
Learn more about professional indemnity insurance
Who needs professional indemnity insurance?
Professional indemnity insurance is highly advisable for any business that provides advice or services to clients, as you could be held liable if you make an error that causes your client damage, injury or loss. Professional indemnity insurance may be mandatory for some professionals in Australia, such as engineers, architects, and real estate agents (in some states).
What happens if I don’t have professional indemnity insurance?
If a client takes legal action against you, you’ll need to fork out the money to cover all legal defence costs from your own pocket, as well as the potential costs of damages awarded to the other party.
What’s the difference between public liability and professional indemnity insurance?
Public liability insurance financially protects businesses against claims made by third parties for damages, loss or injury caused by their business activities. For example, this type of cover protects you if a customer slips and injures themselves on your premises. Professional indemnity insurance covers claims made by clients if your professional advice or recommendations cause them damages, loss or injury.
Depending on your business, you might find both cover options essential.
Meet our business insurance expert, Adrian Taylor
As a General Insurance expert with over 13 years’ experience in financial services, Adrian Taylor strongly believes in the protection and peace of mind that all types of business insurance provide business owners. Adrian says this type of cover can be the difference between a business staying afloat and going under if trouble arises.