Professional Indemnity By
What if… • A client is dissatisfied with your work or advice and withholds payment? • You’re sued for breach of contract – perhaps for more than the contract value? • A dispute over service levels starts to cost you money and impacts your bottom line? • A high-profile dispute threatens to cause irreparable damage to relationships with existing clients?
What is PI?
Professional Indemnity policy covers all sums which the insured professional becomes legally liable to pay as damages to third party in respect of any error and/or omission on his/her part committed while rendering professional service.
What it covers?
Indemnification and defense costs: legal expenses cover for disputes over mistakes or failures in your products or services. Your insurer can also help defend you right through to the high court, if necessary. Even if you lose, the policy will still cover you for damages you are liable for (subject to policy indemnity limits) and legal costs.
Rectification: often the insurer may cover the cost of fixing your mistake to avoid a larger claim being made. Fixing a problem before it escalates into something larger is simple common sense.
Outstanding fees: if a dissatisfied client threatens legal action and defaults on a payment, outstanding fees may be paid by the insurer under your PI policy, if it prevents the client making a claim against you for professional negligence.
• Loss of documents or data: The individual loses important documents on behalf of a client that possess key data and there is a fee to replace them
What it covers?
• Breach of copyright or confidentiality: The trusted professional breaks confidentiality and releases sensitive information about their client to a competitor or the public. • Defamation: The person acting on behalf of the client, speaks ill of them leading to a damaged reputation or loss of revenue.
Case Study 1
Scenario: A solicitor advising a company and its shareholders on the terms of a lease for a property that comprised a guesthouse, restaurant and golf course failed to advise the company that the property did not have land use consent for the operation of the proposed business. Claim Settlement : The defense costs associated with the company’s claim against the solicitor were approximately $200,000.
What happened : The company entered the lease, with some of the shareholders even giving up other jobs to run the new business.
When the omission of land use consent was discovered, the company had no option but to exit the lease and the shareholders had to seek new employment.
Case Study 2
Scenario: A solicitor acting for a foreign company that had purchased land requiring Overseas Investment Office consent was sued, as he had failed to advise the buyer about the required consent. Claim Settlement : This claim was settled against the solicitor for approximately $400,000.
What happened : The land was then resold at a loss by the purchaser, as it could not retrospectively obtain the required consent (in fact, the Overseas Investment Office ordered the sale of the land).
Case Study 3 Scenario: An international software firm was asked to deliver a large software and hardware implementation for a window manufacturer. The implementation was eventually completed, but only after the client had requested significant additional functionality. The client then appointed a litigation expert who alleged that there were 650 faults with the implementation, entitling the client to rescind the contract. Claim Settlement : A multi-million-pound counter-claim was brought by their customer, which was fully defended by the insurers. Although the case was struck out by the courts, the insurers paid the software firm’s defense costs in full.
What happened : The software firm, with full support of their insurer, subsequently sued for all outstanding fees, viewing their customers’ claims as unfounded.
Case Study 4
What happened : Scenario: A company developed a computer-based training system planned for release in the UK and Europe.
•
The system’s name was registered and the training of the company sales force was about to begin when a colleague discovered a Swedish company using the same name.
•
They had not registered it but had been using it widely in Europe.
Claim Settlement : The PI insurers paid for the product to be renamed and also the subsequent reprinting of the promotional materials.
Why PI ?
Professional indemnity insurance (also known as PI) isn’t only about covering your business in the event of a mishap. It can also be a way to help a business grow – a goal for consultants as much as any other small business.
Many clients will even ask you to provide proof of PI before they’ll agree to work with you, particularly if they’re a local authority or a larger company. So taking out the right policy could help to take your business to the next level.
Highlights • This policy is meant for professionals to cover liability falling on them as a result of errors and omissions committed by them whilst rendering professional service. • The policy offers a benefit of Retroactive period on continuous renewal of policy whereby claims reported in subsequent renewal but pertaining to earlier period after first inception of the policy, also become payable. • Group policies can also be issued covering members of one profession. Group discount in premium is available depending upon the number of members covered
Scope
• The policy covers all sums which the insured professional becomes legally liable to pay as damages to third party in respect of any error and/or omission on his/her part committed whilst rendering professional service. Legal cost and expenses incurred in defence of the case, with the prior consent of the insurance company, are also payable, subject to the overall limit of indemnity selected. • Only civil liability claims are covered. Any liability arising out of any criminal act or act committed in violation of any law or ordinance is not covered.
Who can take the policy? The policy is meant for professionals. We issue 'Professional Indemnity' policies to the following group of professionals
Doctors and medical practitioners which covers registered medical practitioners like physicians, surgeons, cardiologists, pathologists etc.
Lawyers, advocates, solicitors and counsels
Medical establishments - which covers legal liability falling on the medical establishment such as hospitals and nursing homes, as a result of error or omission committed by any named professional or qualified assistants engaged by the medical establishment
Engineers, architects and interior decorators
Chartered accountants, financial accountants, management consultants
Highlights Coverages
Exclusions
• Employee dishonesty
• Known, deliberate, intentional acts
• Defamation
• Claims arising out of the bankruptcy and insolvency of a banking company
• Breach of confidentiality/breach of privacy • Costs incurred for replacing or restoring lost documents (including computer records)
• Intentional noncompliance with the law • Bodily injury and property damage claims
• Reputational costs (optional)
• Insured versus Insured claims
• Unfair trade practices (optional)
• Contractual liability
• Mitigation costs and expenses
• Prior claims and circumstances • Pending litigation • Fines and penalties
Thank You
Disclaimer The information and material provided in this presentation do not constitute an offer or solicitation for the purchase or sale of any security and financial instrument. The information may be obtained from various sources and PINC and/or its affiliates do not represent that the information is accurate or complete, and it should not be relied upon as such. PINC accepts no liability whatsoever for any direct or consequential loss arising from the use of this material or its contents. All estimates and opinions provided herein constitute the original researcher’s judgment as of the date of the report and may be subject to change without notice. PINC will not be responsible for the consequences of reliance upon any opinion or statement contained herein. The returns on the products discussed in this material are not guaranteed by any bank unless specifically stated and are subject to investment risks, including possible loss of the principal amount invested. An investment in any product should be made only after careful study of the most recent sales prospectus, term sheets, relevant fund regulations and basic legal information contained therein. Furthermore, investments in foreign currencies are subject to exchange rate fluctuations. Before entering into any transaction, you should consider the suitability of the transaction to your particular circumstances and independently review (with your professional advisors as necessary) the specific financial risks as well as legal, regulatory, credit, tax and accounting consequences.