Professional indemnity insurance provides you, your business and your employees, with protection for financial claims made against you or your business.
This type of cover is designed for employees or businesses that give advice and/or provide a service to individuals or businesses, and are looking for a form of protection against legal claims not covered under general insurance policies. Professional indemnity insurance does not generally provide cover for criminal prosecution and a number of other liabilities recognised under criminal law, though other forms of insurance may cover these.
Do I actually need professional indemnity insurance?
Any worker that provides another person advice and/or a service of skilful nature that has required previous training for an established discipline is recognised as a professional.
There is legislation in place in Australia to regulate the provision of services by professionals. Despite this, mistakes can and do happen in the workplace and will often lead to the professional’s client seeking compensation for damages. A professional can still be liable for losses even if the mistake was not a result of their own negligence. Professional indemnity insurance ensures your business can continue to operate despite having to cover legal costs.
Do you own your own business or provide a service?
Most Australian workers are covered under their employer’s liability cover, however any worker carrying out any consulting or contracting work must ensure that they have adequate and appropriate professional indemnity insurance in place. All professionals should take the time to review the current cover they have in place and assess whether it is worth them taking out additional cover to ensure they are protected from claims against errors or omissions they have made in the provision of their professional activities.
Professions that generally require professional indemnity insurance
As mentioned previously, anyone that provides advice or a service to another in an established discipline is a potential candidate for professional indemnity insurance. Some typical professions that will usually require professional indemnity insurance include:
Architects and designers
Finance and mortgage brokers
Real Estate Agents
Beauty, Massage and Physiotherapists
Travel Agents and Tour Operators
Many professions work closely with Australian governing bodies to determine an appropriate level of professional indemnity cover that is required for their profession. Regulations around what types of insurance are mandatory for different industries can vary from state to state. It might be best to consult with your industry body to get a clear understanding of the specific types of cover you require.
Does work that is supervised require professional indemnity insurance?
Just because the work is supervised by a principal of the company is no reason for workers to think that they may not be liable to defend claims for negligence. In the event that they end up in court on claims for negligence, the cost of legal fees and advice alone could quickly amount to tens of thousands of dollars. This may only be the start of a potential financial nightmare if they are found to be liable.
Do contract workers need professional indemnity insurance?
There have been cases in Australia where contract workers and consultant have still been found to be negligent despite carrying out duties given by principal with whom they were employed. Many companies will now require contract workers to have both professional indemnity insurance and public liability cover in place. If the work the contract worker performs causes damages, they are liable for claims from the employing company.
What does professional indemnity insurance actually cover?
Essentially, professional indemnity is designed to cover the policyholder for any legal costs that may be incurred if a client files a claim. Any ensuing compensation that may be required to be paid to the client from the individual or business is also covered. Comprehensive policies will offer cover for claims from clients for financial loss, bodily harm or damage to property due to errors in the provision of the service.
Typical civil liabilities covered under a policy include:
- Breach of duty. Indemnifies the insured for claims arising out of breach of duties including confidentiality, privacy or fiduciary duty
- Consumer protection liability. Claims for compensation resulting from violation of statutory duty
- Contractual liability. Claims breach of contractual agreement that can be enforced in court
- Breach of Competition and Consumer Act and Fair Trading Acts. Indemnifies policyholder for claims arising for breach of Competition and Consumer Act and Fair Trading Acts (Australia and New Zealand)
- Intellectual property. Claims made for the infringement of the use of intellectual property. Most policies will require for the act to be unintentional and for the purpose of the provision of the service
- Unintentional defamation. Unintentional publication of words believed to be defamatory of the client if the insured made the comments innocently
- Contractors or consultants. Liability arising from services provided by contractors or consultants. Indemnity will only provide cover for the policyholder and will not extend to the contractors and/or consultants that have provided the service
- Libel or slander: Liability arising from libel or slander by the insured to the client provided that it was committed during the provision of their professional service and that it was unintentional
- Loss of documents. Loss or damage to the clients documents during the provision of the insured’s service
Misleading and deceptive conduct. Claims arising where the policyholder has engaged in conduct that is misleading or deceptive in the provision of their service as outlined under the ASIC Act 2001
- Compensation for court appearance. In the event that the policyholder’s legal advisers require the principal or employee of the policyholder’s business to appear in court, the policyholder will be provided with compensation equal to their daily salary to a maximum amount
- Claims investigations costs. Compensation for costs incurred to investigate claims paid in addition to the maximum limit provided under the policy for Australian and New Zealand jurisdictions
- Dishonesty of employees. Policyholder will be compensated for liability in respect of claims made that were the result of dishonest, fraudulent, criminal or malicious acts or omission by an employee of the insured during the provision of their service
- Inquiry costs. Compensation for costs arising out of inquiries into the insured’s liability
- Joint venture liability. Compensation arising from the insured’s participation in any joint-venture related to their professional service
- Legal consultation costs. Compensation for costs incurred from legal consultation to the policyholder in the event of a claim
- Public relations expenses. Indemnifies the policyholder for adverse public relations expenses that arise during the policy period
- Spouse liability. In the event that a claim is made against the policyholders spouse, the claim will be treated as the liability of the insured’s
- Extension of claim period. In the event that a claim is made against the insured up to a specified number of days following the expiry of the policy, the insured will still remain covered under the policy
The conditions of the cover features listed above will each have their own set of conditions for compensation to be paid which may vary greatly between policies. It is crucial that anyone looking to take out cover is absolutely clear on the requirements for a claim to be paid and the maximum compensation that they stand to receive under claim.
Who Is Covered Under A Professional Indemnity Insurance Policy?
Professional indemnity insurance must be able to provide adequate cover for the insured to be protected from any civil liabilities that may arise from the provision of their service either from themselves or by others working on their behalf. This cover must be broad enough to extend to past, current and future work. Professional indemnity policies will generally provide cover for:
- Each party identified in the policy schedule. This may include people, firms or incorporated bodies
Past, present and future principals
- Any entity that is created or under the control of the insured that performs a professional service during the policy period
- Past, present and future employees of the insured. This may extend to include volunteer workers and students
- Liability of the principal from previous business conducted for the same service that is listed under the current schedule
- Entities that have previously traded with the business insured under the policy
- Subsidiary companies of the insured
- The insured’s spouse
- Legal entities of the insured
- Some (but not all) policies may also include cover for:
- Joint venture liability
- Liability for professional service that has been provided by an agent or consultant
How is professional indemnity insurance different to public liability insurance?
Everyone is regulated under common law to not cause damage to anyone or their property or to cause them any financial loss. This liability is known as ones general duty of care and is separate to the professional liability that professionals have in the provision of their business to ensure that their client does not suffer any injury, damages to property or financial loss.
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