Professional Indemnity Insurance
Professional Indemnity Insurance policies are designed to indemnify an Insured for their legal liability to pay compensation (including Claimants' costs and expenses) in addition to the Insured's own defense cost as a consequence of claims against the Insured for
- Financial loss
Emanating from the professional negligence of the Insured.
Under the conditions of a typical Professional Indemnity insurance policy insurers have two principal duties to the Insured: the duty to defend and the duty to indemnify which are generally defined as follows:
The duty to defend is triggered when the insured receives a notice of a third parties intention to commence legal action against the Insured who in turn "tenders" defense of the claim to its professional indemnity insurer.
The duty to indemnify means the duty to pay "all sums" for which the insured is held legally liable.
Subject to the specific terms, conditions, limitations and exclusions contained within the Insured's policy document.
Types of Professional Indemnity Insurance
There are typically two forms of Professional Indemnity wordings:
Negligent act, error or omission
This indemnifies the policyholder against loss/circumstances incurred only as a result of their negligent act, error or omission in carrying out their professional duties. This is the narrowest form of cover
Civil liability
Some PI policies go further than the standard cover and provide indemnity 'for any civil liability'. This covers such areas as breach of contract, breach of duty, libel and slander. (Some standard cover policies may also include libel and slander as extensions to the policy wordings if required.)
Because the operative clause of 'civil liability' is so wide, there is normally a long list of exclusions in order to exclude unwanted liabilities that should be covered elsewhere – such as Employers Liability (EL) and Public Liability (PL) risk.
Some policies are more tightly worded than others and whilst a number of policy wordings are designed to satisfy a stated minimum approved wording, which makes them easier to compare, others differ dramatically in the cover they provide. Great care should be taken in understanding the terms, conditions, exclusions and subjectivities contained within any professional indemnity insurance policy.
Professions Commonly Purchasing Professional Indemnity Insurance
Professional Indemnity Insurance (PI) is typically obtained by business professionals who provide advice to their customers. There are two categories of businesses that purchase PI: voluntary and involuntary. The latter form of business is required to purchase cover by state legislation or as a consequence of their membership of a particular profession.
Common industries or professional who purchase PI include:
- Accounting and Financial Services
- Architecture
- Building Professions
- Charities
- Consulting
- Information Technology
- Legal
- Medical
- Transport Industries
