If you are a professional who provides advice or services to your clients, you may have heard of professional indemnity insurance. This is a type of insurance that protects you from legal liability if you make a mistake, cause damage, or breach your duty in the course of your work. Professional indemnity insurance can cover the costs of defending yourself against claims, as well as paying compensation or damages to your clients if you are found liable.
But before you rush to buy a professional indemnity insurance policy, you should know that it does not cover everything. There are some scenarios where professional indemnity insurance will not help you, and you may still end up paying out of your own pocket. Here are some examples of what professional indemnity does not cover:
Intentional or dishonest acts:
If you deliberately or fraudulently cause harm to your client, or act in bad faith, your professional indemnity insurance will not cover you. For instance, if you falsify documents, misappropriate funds, or breach confidentiality, you will not be able to claim under your policy. This is because professional indemnity insurance is meant to cover honest mistakes, not intentional wrongdoing.
Bodily injury or property damage:
Professional indemnity insurance is designed to cover financial losses arising from your professional services or advice. It does not cover physical harm or damage to people or property. For example, if you are an architect and your design causes a building to collapse, injuring people and destroying property, your professional indemnity insurance will not cover the medical bills or repair costs. You will need a separate public liability insurance policy for that.
Contractual liabilities:
Professional indemnity insurance covers your legal liability to your clients based on the common law duty of care. It does not cover any additional liabilities that you may have agreed to under a contract. For example, if you are a software developer and you sign a contract with your client that guarantees a certain level of performance, quality, or functionality of your software, and you fail to deliver on those terms, your professional indemnity insurance will not cover the breach of contract. You will need a separate contractual liability insurance policy for that.
Known claims or circumstances:
Professional indemnity insurance operates on a claims-made basis. This means that it covers claims that are made against you during the period of your policy, regardless of when the actual incident occurred. However, this also means that it does not cover claims that are made against you after your policy expires, or claims that arise from incidents that you knew about before you bought the policy. For example, if you are an accountant and you discover an error in your client’s tax return that you filed last year, and you buy a professional indemnity insurance policy today, your policy will not cover the claim if your client sues you tomorrow. You will need to notify your insurer of any known claims or circumstances as soon as possible, and they may offer to extend your coverage for an additional premium.
Other exclusions:
Depending on the type of profession and the insurer, there may be other specific exclusions in your professional indemnity insurance policy. For example, some policies may exclude claims arising from cyber risks, such as hacking, data breaches, or ransomware attacks. Some policies may exclude claims arising from intellectual property infringement, such as plagiarism, trademark violation, or patent infringement. Some policies may exclude claims arising from defamation, such as libel, slander, or malicious falsehood. You should always read the policy wording carefully and understand what is covered and what is not.
Professional indemnity insurance can be a valuable protection for professionals who face potential legal liability in their work. However, it is not a magic bullet that covers everything. You should be aware of the limitations and exclusions of your policy and consider other types of insurance that may complement your professional indemnity insurance. You should also consult a reputable insurance broker who can advise you on the best coverage for your needs and budget.
I hope this article helps you understand more about Professional Indemmity insurance. If you have any questions or want someone to review your current policy you can contact me here
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