Professional Indemnity Insurance Explained
Any business that holds itself out to clients as a professional organisation such as Landscape Architects or Public Relation Consultants, is at risk of having an action brought against the business if something goes wrong with a service or product. An example might be when an Landscape Architect makes an error in the design of a garden that results in a claim being made to rectify the problem.
The Insurance policy that responds to these types of claims is the Professional Indemnity Policy. In fact, in many professions, a business is not allowed to operate without this valuable cover. Errors happen, and when they do, the business will need this cover so that the risk is transferred to an Insurance company. With most Professional Indemnity Policies, the Insurer will pay the defence expenses up to the limits of the policy.
The Professional Indemnity policy is rated based on the industry the business participates in, the limit of indemnity required, and the claims history (if any) of the applicant. Needless to say, a Professional Indemnity policy for an Landscape Architect is going to cost much more than that of a PR Consultant. The rate will always be based on the amount of risk involved. The policyholder must understand that they are covered for errors they make, not intentional acts. An accountant that intentionally puts wrong information in the accounts of the client will not find protection from the Insurance company for the intentional act of cheating.
Professional Indemnity Insurance is often confused with Public Liability insurance. Although both policies provide cover for the business, what they cover is very different. Where the Professional Indemnity policy will offer cover in the event of a financial or personal loss due to an error made by a professional, the Public Liability policy offers coverage to pay for losses incurred due to accidents on the insured’s property (slip and fall) or damages caused by workmanship or during the service supplied by the business. For example, you hire a lawn maintenance company to mow your lawn and while doing so, the mower throws a rock through your window and breaks a very expensive vase on the dining table; your action would be paid by the Public Liability insurance, not the Professional Indemnity insurance. The most typical example is when a customer slips on a wet floor in the office and suffers a severe injury. If an action is brought, it is the Public Liability policy that will respond to the claimaint.
Unfortunately, not every business that should carry Professional or Public Liability Insurance does so. Many one or two man companies will forgo this important cover so they can be more competitive in the marketplace. This is especially typical of start-up companies because they are unaware of the risk that is inherent with any business. An experienced or well-informed business owner will not take the chance of losing everything they’ve built in a lawsuit brought by a customer.
Any business that provides a service or product should be aware that every prospect, customer or client can result in a lawsuit. It only takes one award from the courts to put a company out of business.
This is why you need Professional Indemnity Insurance.
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