Professional Indemnity Insurance Explained

Learn how to protect yourself and your small business with our comprehensive guide to professional indemnity insurance, also known as professional liability insurance.

What’s in this guide to professional indemnity insurance?

One of the most exciting business trends of recent years is the rise of independent consultants and small businesses, which offer highly-specialist knowledge, skills and advice to clients and customers.

Offering these kinds of services is not without its risks. Mistakes are made from time to time, and without the right cover, these can prove costly.

What is professional indemnity insurance?

Professional indemnity insurance is a type of liability insurance designed to protect businesses and individuals who provide advice or expertise to third parties.

Also known as professional liability insurance or errors and omissions insurance (E&O), this cover is designed to protect you if a customer alleges that you provided faulty or inadequate advice and services. If you have professional indemnity insurance, the cost of your legal defence will be covered, along with compensation you may need to pay to the client following a claim made against you.

 

Professional indemnity insurance should not be confused with other types of business insurance which cover more ‘tangible’ grievances, such as:

  • Public liability insurance

    Cover for claims made by third parties (members of the public) if they are injured or have their property damaged during the course of your work.

  • Employers' liability insurance

    A legal requirement if you have employees, this cover protects you if someone you employ claims compensation due to an accident or illness which has arisen as a result of their employment with you.

  • Product liability insurance

    If a member of the public is injured, becomes ill or has their property damaged as a result of a product you have manufactured, supplied or distributed, you could be liable. Product liability will cover compensation and your legal defence.

Do I need professional indemnity insurance?

Some professions are required to have professional liability by regulators in their industry. This includes:

  • Financial advisers

  • Solicitors

  • Architects

  • Chartered surveyors

  • Healthcare professionals

Though not a legal requirement for everyone, professional indemnity is worth considering by any company or sole trader that is in the business of offering advice, knowledge or skills as part of their services. It’s also worth remembering that, with this type of cover, you’ll be protected regardless of whether a claim is justified or not.

Examples of professional indemnity claims

Depending on your sector, the kinds of professional indemnity claims you could encounter will vary dramatically. For instance, a spelling mistake on a printed advert could land the responsible marketing agency in hot water. 

That said, there are some common claims which affect most industries:

  • Professional negligence

    This occurs when you make an error while doing a piece of work for a client. For instance, if an engineer designed a heating system for a large hotel reception room but did not consider its size adequately, meaning the installed radiators did not heat the area sufficiently and the system had to be removed and redesigned.

  • Loss of money or goods

    Should your client entrust you with money or goods which you subsequently lose, they could sue you. A typical scenario would involve a shoe mender being entrusted with a customer's shoes: they are legally liable for the safe storage and return of the shoes.

  • Losing documents or data

    When business documents and data are lost, companies risk their trade secrets falling into their competitors’ hands. If an IT contractor loses confidential information, a claim could be made against them.

  • Defamation: libel and slander

    Libel and slander insurance covers you against a law suit should someone feel that you have written or said something defamatory about them that is also false. Slander is the term for anything that has been spoken and libel for anything written.

  • Breach of copyright or confidentiality

    Accidental use of another’s intellectual property can be an expensive mistake. If a graphic designer uses a font without permission, they are breaking copyright law and could be sued.

Small business professional indemnity insurance

One survey found that 75% of small business owners are worried about making professional mistakes, yet less than half of those who give clients advice take out professional indemnity insurance.

If you’re a sole trader or heading up a small business, your client-base and budget might be limited, but the cost of a claim made against you can be damaging without the right cover.

Professional indemnity insurance for businesses like yours

The recent rapid growth in the number of small, dynamic businesses and freelancers in the UK is hugely exciting. Filling out niches which never existed until the last few years, this sector of the economy has a very positive future ahead.

Towergate’s professional indemnity insurance offers a range of policies that fit around your business, providing a level of cover that’s right for you. If you're interested in finding cover for your profession, you can read more about professional indemnity insurance.

Want to find out more about our Professional Indemnity Insurance?

More details

Interested in more business related content?

Business Risk Management

Risk Management Guide

How well do you know the threats to your business and what you can do about them? Learn the ropes of effective risk management with our handy guide.

View article