If you give advice as part of your business, then it’s worth investing in professional indemnity insurance. Professional indemnity, or PI insurance as it’s also known, gives you and your business protection should a client or customer take legal action against you as the advice you’ve given has cost them money or damaged their business.
Once upon a time PI, like its fellow traveller Directors’ and Officers’ insurance, was only for large corporations. In recent years though there’s been a huge rise in the number of claims being brought against small and medium sized enterprises (SMEs).
These claims are not only time consuming and a distraction from your working day, they can also be cripplingly expensive. A recent case regarding an IT consultant saw him facing a £15,000 claim for data loss. Another saw an accountant’s being hit with £20,000 pay-out for giving incorrect advice, while yet another saw a bespoke furniture designer face a claim as the goods she manufactured didn’t meet the client’s expectations. Such cases highlight the potential cost of this problem and the wide range of professions and circumstances in which they are occuring.
Fortunately there is a simple, cost-effective solution in the form of PI cover. In this new blog from Coversure Nottingham, Nottingham’s leading provider of professional indemnity insurance, we’ll take you through what PI is, what it can cover and why it’s become an essential protection for businesses small and large.
What Is Professional Indemnity Insurance?
Simply put, if you give advice then having PI cover place will help protect you should a client decide to take legal action against you as that advice was wrong or they feel you haven’t done your job properly. As you can see from the following, there are a range of grounds under which a claim can be brought and these can be grouped together as:
• The advice you gave was wrong
• The service you gave didn’t live up to their expectations
• Your business has lost their documents/data
• You/someone who works for you has said something online/in the press that is untrue/damages their business’s reputation
Given that most businesses now work online, use social media, handle data or give advice, getting professional indemnity insurance is a wise precautionary move. Worryingly over 40% of UK SMEs don’t have cover, which is leaving them exposed in the event of a claim.
The specifics issues that this type of cover can protect you from include:
• Breach of duty – a breach of duty is when you or your company fails to live up to the duty you have promised the client. Whether that’s by delivering below par advice or not providing a service that you’d agreed to, a breach of duty could cost you dearly. In some cases, if a claim is brought against you, you could be left personally liable for the costs and any damages. Professional indemnity insurance protects you against these costs, providing great peace of mind for a modest premium
• Civil liability – this specifically looks at the effects of advice or instructions rather than assigning fault with the initial advice. You’ll need civil liability cover if your advice leads to injury or illness as opposed to financial loss. If you complete consultancy work then this will be more relevant to you than, say, a financial advisor or lawyer
• Negligence – every professional has a duty of care to their client. This means they must act and deliver their services to a high standard, taking reasonable care to do so. Due to the Supply of Goods Act 1982, there doesn’t need to be a breach of a specific contractual agreement for you to be liable for negligence. As an independent body – such as a financial advisor – this would fall on you personally and could leave you with large legal costs and compensation claims to pay
• Contractual liability – if you sign a contract with another company and assume liability on behalf of them in your job role, contractual liability could be useful for you. This protects you if you’re held liable for failing to uphold the terms of a contract. This could affect both service-based and advice-based businesses and it could be key to protecting you
• Loss of documents or data – this both applies to losing documents and data or sharing data or sensitive information without prior consent. Whether you’re a solicitor, lawyer or data controller – such as a digital marketing consultant – you could be held personally liable for losing documents or data and face hefty penalties
• Defamation – if you make false or defamatory statements about a person or organisation, you could be held liable for damages. Particularly useful for those in the journalism industry or anyone that regularly makes statements via a public platform such as social media, PR, or online marketing
Do Small Businesses Need Professional Indemnity Insurance?
While it’s true that PI was created to protect larger companies, the world of business has now moved on so much that ALL businesses should consider taking out a policy. Traditionally the sorts of businesses who have had professional indemnity cover in place has been businesses such as:
• Financial advisers
• Insurance brokers
• Civil engineers
Today the types of organisations that have or should have it also include:
• Marketing agencies
• Private tutors
• Personal trainers
• IT consultants
• Tradesman – from electricians to mechanics
In short, if you give advice or advise clients regarding a product or service – even if its not created or carried out by you – then you should consider getting a professional indemnity insurance quote. Depending on the size of your business and the nature of your work premiums are affordable and it will give you great peace of mind.
A Small Business Professional Indemnity Case Study
The following is an anonymised true life case study of what can go wrong and how PI can save the day.
“Chris owns and runs an IT consultancy in East Anglia. He’s experienced, Microsoft Certified and is trusted by his network of SME clients for whom he does everything from website hosting to software and hardware installations.
One of his clients asks Chris to recommend a small business accountancy software package that can hold his books and run his payroll for him. Chris does some research and finds what he thinks is an ideal solution.
Unfortunately for him he’s not familiar with some of the other software that the business is running and when the install is complete it causes their network to slow to a crawl. This results in the busines being unable to work at its usual capacity, delaying client work and making the business look bad.
Chris uninstalls the software and offers to find a suitable replacement, but the unhappy client decides to sue claiming negligence. A claim for £10,000 is levied but Chris’s PI-funded legal team gets this reduced to £7,500 and a settlement is made.”
Why (Sm)All Businesses Need Professional Indemnity Insurance
It’s a sad fact that the business world is becoming more litigious and that clients are increasingly likely to sue if they feel let down. As digital’s advance continues and external threats such as cyber-attacks rise, so it’s becoming more and more important for business owners to have professional indemnity insurance in place.
As we have said, PI cover doesn’t have to be expensive and it can offer you great peace of mind for an affordable premium.
Like Some Professional Indemnity Insurance Help?
If you would like to know more about protecting yourself and your business with PI cover, then please contact Coversure Nottingham today. You can call us on 0115 837 0984 or email Coversure Nottingham.