Do You Actually Need Professional Indemnity Insurance?
Professional Indemnity Insurance can be a crucial policy to have for many businesses.
But is having professional services cover a "must" in all instances? Does every business actually need it?
If you manufacture, design, supply or install products, and provide a level of consultancy to your client before providing such products, you may not need Professional Indemnity Insurance - providing you with substantial insurance cost savings in the long run.
This is because if you don't provide a separate fee for your consulting, and already have Public Liability or Product Liability Insurance in place, you may have a 'professional services' provision in your wording that covers you for relevant claims.
Before you rush off and start excluding Professional Indemnity Insurance from your arsenal of insurance cover, it's important to first understand how Public Liability, Product Liability and Professional Indemnity Insurance actually work.
Each type of insurance explained
Public Liability Insurance
Public Liability Insurance provides you with protection for claims made against you in the course of running your business. Liability Insurance will provide cover for personal injury and property damage claims which are brought by members of the public, customers and other external parties.
A typical example of a liability insurance claim is where a person slips and falls on your premises and sues you for breaching your duty of care.
Product Liability Insurance
Product Liability Insurance protects your business for claims made against you which arise from a product you sell, supply or manufacture. This form of liability insurance is provided under a General Liability Insurance policy which will include cover for both Public and Product Liability Insurance.
Product Liability Insurance is designed to cover you for claims for personal injury or property damage which arise from the product you sell, supply or manufacture. This form of liability insurance covers you for any sum which you are legally liable to pay for compensation as a result of the product your business trades in.
Professional Indemnity Insurance
Professional Indemnity Insurance protects your business from claims made by your clients and customers against you as a result of the advice that you provide them. If your business provides advice or service for a fee then you will be deemed to be providing a professional service.
Having Professional Indemnity Insurance can provide you with cover for financial losses that could occur in instances such as:
- Liability for Damage as a result of negligent advice
- Legal costs including any awarded against you
- Claim Investigation Costs
- Unintentional infringement of intellectual property rights
- Public Relations / Crisis Management costs
How is this relevant?
As you can see from the descriptions above, Professional Indemnity Insurance is tailored more towards professional services industries; ie, lawyers, consultants and so forth. If your core business involves the manufacturing, design, supply, installation or provision of products, Professional Indemnity Insurance may not be a strategic purchase.
This being said, as every business has its own unique sets or risks, we caution you to speak to a good business insurance broker (like us!) before making any major decisions about your insurance. You also have to be a business that doesn't provide your customers with a separate consultation fee, and that you have a form of 'professional services' clause in your Public/Product Liability Insurance policy wordings. If your broker insists that you invest in Professional Indemnity Insurance, make sure to ask them about this professional services clause first and how it applies to you.
What is a professional services provision? Example of wording
As mentioned above, you may not require Professional Indemnity insurance if you have 'professional services provision' wording in your policy. Here's an example of such wording (it may vary depending on your insurer and situation):
- Breach of professional duty
arising out of any breach of duty owed in a professional capacity by You and/or any person(s) for whose breaches You may be held legally liable, but this exclusion shall not apply to claims for Personal Injury and/or Property Damage:
- arising out of the rendering of or failure to render professional medical advice by Medical Persons employed by You to provide first aid and other medical services on Your Premises;
- arising out of advice which is given by You for no fee; or
- arising out of advice given in respect of the use or storage of Your Products.
Do you need Professional Indemnity Insurance? Real scenarios:
The businesses in the examples below may not need Professional Indemnity Insurance. However, every business has its own unique set of risks so please seek the advice of a qualified broker before making any decisions. Also refer to the section below - should you get Professional Indemnity if you provide written reports? - for more information.
- A manufacturer who manufactures, supplies and installs a product that they've made but do not charge a separate fee for the installation component when invoicing their customer
- A building company that also provides drafting services for items they are constructing and installing but do not charge a separate fee for these services when invoicing their customer
- A product manufacturer, wholesaler and/or retailer who also provides design advice for any products they design for their customer
- An industrial/commercial maintenance contractor who may also provide advice on what repairs or parts may be required
- Bicycle shops who also fit/adjust the bike to the riders
- Shoe stores who also provide advice on what shoes are better for their customer e.g. sports shoes, feet alignment assistance, etc.
Scenarios where you will need Professional Indemnity Insurance:
Here are just some examples of businesses that will require Professional Indemnity Insurance
- A law firm that provides legal advisory to their clients
- A marketing firm that provides clients with branding and marketing advisory
- An engineer or independent contractor who oversees a construction project
- Any services providing advice where a fee is charged for that advice
Should you get Professional Indemnity if you provide written reports?
What if you manufacture, supply, design and install products but also provide written reports? Any business that provides written advice for their customers (such as repair reports, inspection reports, installation advice and so forth) should still consider taking Professional Indemnity Insurance. You may also consider taking Errors and Omissions cover.
What is Errors and Omissions cover?
Professional Indemnity is a civil-liability-based wording that provides similar cover to Errors and Omissions; however, Errors and Omissions cover concentrates more on the actual conduct of the insured rather than the nature of the liability, which is what a Professional Indemnity policy focuses on. In most cases, where you have incurred a civil liability in which you produced a written report, you would have engaged in some sort of acts, errors or omissions for which you are liable.
The Errors and Omissions cover will usually respond to all sums that you become legally liable for as a result of a claim for breaches of professional duty arising from any act, error or omission in the conduct of the Insuredâ€™s Business as well as the Costs and Expenses incurred by you, with the insurerâ€™s written consent, in defense or settlement of any Claim covered by the Policy.
If you manufacture, design, supply, install products or provide any other forms of professional advice but do not charge a seperate fee for these activities, you may not need Professional Indemnity Insurance as you may already be covered for 'professional services' under your Public and Product Liability Insurance cover. If you provide written reports, you may still need to consider investing in Errors and Omissions Cover which can be included via an optional extension under a number of Public and Product Liability policies. But every situation is unique, so speak to a qualified business insurance broker before making any decisions.
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All information above has been provided by the author.
Alishia Oliver, Crucial Insurance and Risk Advisors., AFSL : 451450 ,
This article originally appeared on Crucial Insights and has been published here with permission.