Professional Indemnity

A standard Professional Indemnity policy is designed to act in these instances

• Professional negligence, such as making a mistake in a piece of work for a client, or giving them poor advice
• Unintentional breach of confidentiality and/or copyright
• Defamation and libel
• Loss of documents or data
• Loss of money or goods (for which you are responsible)

Costs covered by the insurers include, legal costs in defending any claim and any amounts due to the third party. Some professional indemnity policies can extend to deliver additional expertise such as managing public relations and crisis containment services.

Unlike typical Public and Employers Liability policies Professional Indemnity is written on a “claims made” basis. This means cover is provided for claims which are made and notified to the insurer during the period of insurance.

Therefore providing the error or omission occurs during the period of insurance covered by the policy and it is reported to the insurer during this period, it will be covered. Should the insurance policy expire and the claim reported after this time, despite the error or omission falling in the period of insurance as the notification of the claim was made outside of it the claim would not be covered.

It is important therefore to maintain continuous cover for professional indemnity policies as claims can be made after contracts are completed or indeed following closure of a business. This type of cover is called “run off cover.”

A retroactive date means that a Professional Indemnity policy can provide cover for work you have done in the past. There are two dates that are relevant for a Professional Indemnity policy. The first is the inception date (or renewal date) of the policy. This is the start date of the policy period. The second is the retroactive date, being the date that cover operates back to.

As the policy is issued on a “claims made basis” it is recommended, if not essential, that companies continue professional indemnity cover even after the business is no longer trading or undertaking with work that may have required taking out such cover. Run off cover will protect the company should claims be notified after the business has ceased trading. For many trades such as accountants, architects and solicitors it is recommended this run off period is at least 6 years.

Professional indemnity is arranged in two ways and is important in the settlement of large claims or a series of claims. Settlement in the “aggregate” means claims collectively are paid up to the indemnity limit and total claims cannot exceed this amount. On an “any one claim” basis the policyholder is entitled to the full indemnity limit for each and every claim.