Professional Indemnity Insurance Explained

Putting the right kind of precautions in place is a wise move in business as well as in life in general. Anyone who provides services and or advice on a professional basis is expected to deliver an expert job, and mistakes are typically rare, but can be costly. Professional indemnity insurance is seen as essential to many people providing consultancy and contract work as it could help protect them should they face a legal claim following a simple mistake or act of negligence.

Professional indemnity is sometimes also known as PII and is a type of insurance cover. The arrival of a culture of no-win no-fee solicitor services means people are now more legally aware of their rights to redress if they suffer what is known as a financial injury, meaning they have lost money as a result of someone's mistake.

Professional indemnity helps someone to protect themselves against such claims by paying for any legal costs which are incurred when defending an action. Court cases can be long, stressful, and expensive. Sometimes fees will run into hundreds of thousands of pounds or more, potentially crippling some companies financially.

But those who have to professional indemnity insurance could claim on their policy should they be sued following an act of negligence, or simple mistake, or even if an employee of the business behaves dishonestly and tries to steal information or money from a client. Rather than a straightforward error, this type of policy will normally also cover a straightforward omission.

There are some other eventualities included in the typical policy, which although by no means commonplace, can be crippling to a business which is not prepared for them. They include libel actions should the business face being sued by someone who feels they have been defamed, plus breach of copyright or confidence.

Firms can select a level of cover which is appropriate to them, so a multinational firm which deals with high profile clients may require protection up to around 5 million, whereas a smaller firm may only need cover up to 1 million.

Setting up a business can be complicated and can also involve a lot of paperwork. This means sometimes people forget professional indemnity cover or do not get around to sorting it out. Potentially they could have been operating for a period without cover. Some policies include retroactive features, meaning if a claim arrives on the doorstep which relates to something which happened before the cover was taken out, the person will still be covered.

Sometimes people choose to change insurers or wind down their business. They may also decide to retire. In such circumstances an insurance company may be able to provide you with 'run off' professional indemnity insurance cover, which will even guard against a later claim which dates back to something which happened when the company was still trading. Just because they have stopped working in the capacity in which they made the error does not mean they will not be liable should a legal claim arrive.

Liz Willder is from Tescocompare.com, the insurance comparison site where you can compare business insurance policy features and prices