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Here’s the scene:

You’re working with a client, but you make a mistake that negatively impacts them or their business. Your client proceeds to take legal action against you, which results in costly litigation fees.

Thankfully, you have professional indemnity insurance.

Let’s break down how this type of insurance can help to cover you in such unfortunate, but possible, scenarios.

What is professional indemnity insurance?

Professional indemnity insurance* protects professionals who provide advice or services to other businesses or individuals. This type of insurance is important to have because if the client claims your advice or services caused them damages, injury or loss, then you could be hit with hefty claim and associated legal costs.

Why do you need to consider professional indemnity insurance?

Despite your best intentions, the proverbial can hit the fan. That’s why many associations require or recommend that professionals are covered with industry-specific professional indemnity insurance.

What could go wrong? Well, examples of common breaches of duty and mistakes that can result in liabilities can include the following:

  • 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
  • A personal trainer offering advice to a client, resulting in their client becoming injured
  • An accidental omission in the provision of professional advice resulting in a critical deadline being missed

Case study: The basketball court and the architect

This professional negligence case, which came before the QLD District Court, involved a school that received $505,004 in damages.1

In this claim, an architect firm failed to follow the express instructions given by the school to include a ‘full-sized basketball court’ in their new assembly hall. The negligence arose after there were conflicting instructions from two different school officials about the addition of the basketball court.
Subsequently, the architects failed to clarify the conflicting instructions from the school in writing, before finalising the design. If uninsured or unsuitably covered, this case could have been a knockout blow for the architectural business.

What does professional indemnity insurance cover?

Professional indemnity insurance policies cover your business against claims arising from (actual or alleged) mistakes and breaches in the provision of professional services and advice, including the compensation payable, legal fees claimed and defence and investigation costs.

Typically*, professional indemnity insurance can cover:

  • breach of duty, including claims from breach of privacy concerns, like breaches of confidentiality and fiduciary duty. This also includes a professional duty that has been overlooked;
  • damages due to the dishonest and negligent actions of employees
  • breach of consumer, competition and fair-trading acts
  • defamation cases arising out of the professional advice or service
  • Public relations expenses to help protect your business’ reputation

What isn’t typically covered by professional indemnity insurance?

All professionals should understand their policies exclusions, so they understand what they don’t have covered.  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: typically, any acts, errors, or omissions from the insured professional that intended, or could reasonably foresee, third party loss, injury or damage
  • Asbestos: any claim relating to asbestos isn’t covered by professional indemnity insurance
  • Employee injuries: if your employee sustains an injury while working or carrying out your business’s activities, they would need to be covered under worker’s compensation insurance.
  • Public Liability claims

 

getting covered with business insurance

What you’ll need to include in your policy quote

When you complete a quote, you’ll be required to enter the following details:

  • Contact details
  • Business details, e.g. the total number of employees
  • Financial information, e.g. annual revenue
  • Information about any previous claims

Your type of business and its services affect the level of professional indemnity insurance you may need for complete coverage. It is therefore vital to provide all the information you can about your business and its services.

Additionally, be sure to disclose any past complaints or claims made against you to your potential insurer. Even if you are doubtful, it’s still best to disclose any information you can to your insurer, as any intentional or unintentional omissions of past claims can invalidate or limit your cover.

What other types of business insurance can you consider?

When it comes to running your own business, it’s important to consider all types of business insurance coverage, including:

Public liability insurance*

Suppose you’re found liable for the injury, death, loss, or property damage to a third party because of your business or its activities. In that case, this type of insurance covers any legal fees and compensation.

Product liability insurance*

If your business produces or sells physical products and these are found to cause harm, loss, or damage to your customers, this type of insurance can cover the associated legal fees and compensation awarded.

Frequently asked questions

Who requires professional indemnity insurance?

Professional indemnity insurance is highly advisable for any business that provides advice or services to clients. Why? Because if you make an error that causes the client damage, injury or loss, then you could be liable – which could cost you a lot of money. Professional indemnity insurance is mandatory for some professionals in Australia, e.g. engineers and architects.

What happens if I don’t have professional indemnity insurance?

If a client takes legal action against you, then you’ll need to fork out money to cover all legal defence costs and potentially the costs of damages awarded to the other party.

What’s the difference between public liability and professional indemnity insurance?

Public liability insurance protects businesses against claims made by third parties for damages, loss or injury. 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.

What’s the average cost of professional indemnity insurance in Australia?

The average cost will depend on a range of variables, including your profession, the size of your business and whether you’ve had any previous claims. To find out how much you might need to pay for this type of cover, use our free online comparison tool to compare your options.

Ready to safeguard your business?

Whether you’re a freelancer or run a small business, we can help you compare and find professional indemnity insurance.

Our service makes it quick and easy for you to weigh up policy prices, features and benefits side-by-side so you can find great value. Simples!

*As with any insurance, the cover is subject to the terms, conditions and exclusions contained in your policy document.  The information contained on this webpage is general only and should not be relied upon as advice

Sources

1. Archive.sclqld.org.au. Christian Education Ministries – Qld Ltd v Thomson Adsett Pty Ltd (2015).

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