Is professional indemnity insurance a legal requirement?
In many cases, the professional body or association for a particular sector may require that you hold a PI Insurance policy. It’s certainly the case for solicitors, architects and engineers, for example. Where you work under contract with your clients, it’s also very likely that having a certain level of cover in place will be a contractual necessity.
Even if neither of these circumstances apply to your business, it’s worth considering what the implications might be were a customer or client make a claim against your business. Legal defence costs can soon add up, even where you are ultimately found not guilty. Having protection in place affords you some peace of mind that should an unforeseen issue arise, you have adequate protection in place to allow you to get on with your work.
How much Professional Indemnity cover should you buy?
The level of cover (or the indemnity limit, as it’s sometimes referred to) that a business needs should be determined carefully. Where you are a member of a professional body, it’s likely that the minimum amount of cover will be stipulated. The same goes where you are working under a contract – it’s very likely that the specific value you need to have in place will be referenced.
Beyond that, you should give thought to the range of perils that the business may face and consider the worst case scenario. What would the financial implications potentially look like? If you’re unsure, it’s worth speaking to an advisor, who will be happy to take time to understand your business before recommending an appropriate level of cover.
Some real world professional indemnity claims examples
1- A building contractor designed and built an archway over a shopping centre. On installation it was found to have a design flaw. The legal costs involved spiralled as the building contractor argued fault in court. The Building contractors Professional indemnity policy covered these costs.
2- A Recruitment agent provides an employee to a company for a specific IT role. The employee turns out to be not qualified and causes the project to be delayed by 2 months incurring further costs. The recruitment agents Professional Indemnity policy would cover these costs.