Professional Indemnity insurance explained
At Doyle Mahon Insurances we find that people are often confused as to what Professional Indemnity Insurance (or PI cover as it is often referred to) is and what it covers. In this post we hope to provide a concise, but hopefully useful, explanation of this insurance.
1. What is Professional Indemnity insurance?
Professional Indemnity insurance is a form of liability insurance that provides cover for the financial consequences of professional negligence, following a breach of professional duty by way of neglect, error or omission.
In addition, an indemnity is provided in respect of the legal and other costs and expenses incurred in the defence of any claim.
2. Who needs it?
Any professional person providing advice, design, specifications, supervision etc, whether this be for a fee or free of charge, owes a duty of care to their client, and third parties.
This duty of care is generally the exercise of ‘reasonable skill and care’, in the discharge of the services provided. If a professional fails to exercise this duty (i.e. is negligent) they may be liable for losses incurred by their client, and/or third parties. In the legal system, even proving innocence can be very costly.
3. It is designed to protect the professional
A professional purchases Professional Indemnity insurance for their own protection. The cover is not for the benefit of the professional’s client, although far too often, it is not seen that way.
4. How does liability attach?
Personal liability attaches where a practice operates as either a sole proprietor or a partnership. In the case of a director of a limited company, legal opinion suggests that whilst all corporate liability ceases when the company no longer exists as a legal entity, each director is liable for his own work. Therefore, if a limited company ceases to trade, it does not preclude legal proceedings being brought against individual directors.
5. What can professionals be liable for?
First, any potential plaintiff must prove negligence on the professional’s behalf, (i.e. a failure to exercise reasonable skill and care in the discharge of its services).
If an allegation of negligence is upheld the professional is likely to be liable for the losses incurred by the plaintiff which arise as a reasonably foreseeable consequence of the professional’s actions. The professional will often be responsible for the plaintiff’s legal costs and these can be substantial. It is often the case that large sums of money are spent simply trying to recover fairly minor losses.
Direct financial losses (economic and consequential loss) as opposed to the cost of rectifying a defect is implicit under contract unless specifically excluded.
6. What is the extent of cover?
Professional Indemnity insurance:
- will have a set limit on the amount that insurers will pay – the limit of indemnity – this will depend on your requirements at Doyle Mahon we can adivse you of the cover you would require in your particular business.
- operates for a set period of time
- is subject to the policy terms, conditions, limitations and exclusions.
7. Unique operation of Professional Indemnity policies
Professional Indemnity insurance operates on what is known as a ‘claims made’ basis. This means that it is the policy in force at the time the claim is notified which will operate, irrespective of when the work was actually undertaken or when the alleged act of negligence took place.
The ability of clients or third parties to bring claims many years after services are complete (subject to the relevant limitation periods) emphasises the importance of maintaining cover into the future.
8. Limits of Indemnity
The limit of indemnity is the maximum amount that can be claimed from insurers for the professional’s liability to pay claimant damages. Defence costs are usually paid in addition to the limit of indemnity.
At Doyle Mahon Insurances we offer a comprehenisve range of cover in the area of Professional Indemnity at very competitive prices. We can review your needs and ensure the required covers are in place and any duplicate covers are eliminated. We deliver a tailored service and in the event of you needing to claim we will handle the process through to conclusion.
If you would like to obtain a competitive quotation on your Professional Indemnity Insurance please contact us at Doyle Mahon Insurances (click here) or call us on 053 91 23630