DO I NEED PROFESSIONAL INDEMNITY INSURANCE?

DO I NEED PROFESSIONAL INDEMNITY INSURANCE?

If you or your business provides professional advice for a fee you would have considered “if / do I need professional indemnity insurance”. It is encouraged to consider the benefits and need of professional indemnity insurance to protect against the exposure to claims from your clients and third parties. Whether there is any merit or truth to an allegation made against you by your client it is often going to require legal assistance in order to resolve the matter.

Unless your business has a high level of cash flow that can afford the defence of litigation then the cover is going to benefit you. Even if you do have the ability to afford defending a claim made against you those are profits that could have otherwise been used elsewhere within your business as opposed seeing them go to the pocket of another business (your lawyer!).

WHO NEEDS PROFESSIONAL INDEMNITY INSURANCE IN AUSTRALIA?

Most businesses that provide advice for a fee or professional services are going to be needing Professional Indemnity Insurance in Australia. Regardless of the exposure to your business and decision to insure against it there are other factors that might determine if you need your own cover too:

• Legal obligations to maintain cover as part of your industry (e.g. Architects, Accountants)
• Contractual obligations (i.e. your client stipulates under formal agreement the need to maintain cover)

Most insurers advertise the different types of industries they are prepared or not prepared to quote – here is an example list from Liberty Specialty Markets:

https://assets.libertyspecialtymarketsap.com/appetite-guides/pfr-appetite-guide-au/ 

WHAT HAPPENS IF I DON’T HAVE PROFESSIONAL INDEMNITY INSURANCE?

If you do not have your risk insured then it means your business will be exposed to covering the commercial loss associated with responding to any financial demands made against your business (i.e. damages, legal defence costs, court costs).

In situations where you have failed to insure for PI insurance (i.e. as required at law or under a contract of service with your client) then you will always be exposed commercially as claims for this type of situation are excluded by Professional Indemnity insurance policies.

WHAT IS PROFESSIONAL INDEMNITY (PI) INSURANCE

Professional indemnity insurance is a product designed to respond to claims from a third party (e.g. your client) because of actual or alleged negligence, acts, errors or omissions from the advice or professional services you provided to them.

WHAT IS THE PURPOSE OF PROFESSIONAL INDEMNITY INSURANCE?

It offers protection from the expensive legal defence cost and damages payable in the event your client (or a third party) makes a financial or legal demand against your business from the professional services or advice you provided to your customers.  

WHAT IS AN EXAMPLE OF A PROFESSIONAL INDEMNITY CLAIM?

This question often relates to claims and because this type of insurance can cover a variety of different industries, we have provided a broad overview below to assist understanding:

• Your business provides advice or professional services to your clients
• After receiving advice from your business your client believes they have suffered a financial loss (whether actual or alleged)

Your client may take some of the following steps to threaten or instigate legal action or a financial demand against your business:

• During a meeting and/or telephone call
• Written correspondence (via email or post) from your client
• A formal legal demand from a lawyer sent to your business
• Notices from the Courts demanding your attendance on the allegations

When the above situations occur, your business might be able to work with your client to resolve their concerns commercially to reach an agreed solution. If this is not successful or even possible then you will need to engage a lawyer to assist with defending against the allegations made or to achieve a solution between all parties.

The costs associated with engaging a lawyer can often be too much of a financial burden for most businesses. Also, there is no guarantee that your lawyer is a specialist in managing the type of allegations being made. The benefit of having Professional Indemnity (PI insurance) is that your insurer will engage a lawyer from their panel that is an expert at defending the types of claims made against your unique type of business. What this means is that outside of payment of your excess to the insurer all other aspects of the claim that fall within your policy coverage will be paid for by the insurance company. This offers a great peace of mind for most businesses during what is a very stressful time.

Some specific insurer claims examples are available from the Berkley Insurance Australia website here who are an insurer that specialise in Professional Indemnity Insurance for a range of industries:

https://berkleyinaus.com.au/wp-content/uploads/2023/09/Professional-Indemnity-Claims.pdf

TO OBTAIN PROFESSIONAL INDEMNITY QUOTE PLEASE CONTACT US