What is Professional Indemnity Insurance?
Professional Indemnity insurance (also known as PI insurance) is designed for professionals who provide advice or services to their customers and may even be a legal requirement for some professions. It can cover claims made against your business by customers or other third parties alleging that in performing your professional services, your business has caused them loss.
PI insurance can also help by providing cover for legal costs, settlements and court orders or judgments associated with claims against your business, provided they are covered by the policy.
To learn more about Professional Indemnity Insurance, read our comprehensive guide to PI.
What does Professional Indemnity typically not cover?
As with most insurances, there are some circumstances which are not intended to be covered by Professional Indemnity Insurance (PI Insurance), such as:
- Third-party personal injury or property damage covered under Public or Product Liability Insurance.
- Loss or damage which has not come about as a result of your advice or service
- Any assumed liability under a contract with a client (Contractual liability).
Who needs Professional Indemnity Insurance in Australia?
Professional Indemnity insurance is a mandatory requirement for some professions in Australia, including some registered professions or as part of a professional membership. Even if PI insurance is not mandatory for your profession, your clients may want to see proof of your PI insurance, as this helps assure them that your business will be strong enough financially to deal with a worst-case scenario.
Professional Indemnity claims examples
Here are some claims examples from clients with insurance arranged through Aon to demonstrate how claims of professional negligence can come about, and how Professional Indemnity can help:
Claim Story : Jenny*
Jenny*, a massage therapist performed a massage on John*. John experienced an increase in pain immediately after the massage. He sued Jenny for compensation and rehab costs as he believed it was her massage technique that led to the increase in pain. John was successful in his claim against Jenny, and Jenny was required to pay John compensation. Jenny was also required to pay legal fees in defending herself. Professional Indemnity Insurance arranged for Jenny by Aon helped to cover the legal fees, as well as the compensation she had to pay.
Claim Story : Sam*
Sam* was an accountant who regularly prepared tax returns. In preparing Bruce’s* tax return, he made an incorrect tax deduction. This led to Bruce underpaying his tax for that year. Bruce eventually received a large fine from the tax office, and was also required to pay back the amount he’d underpaid. He successfully took legal action against Sam as it was his mistake that led to him receiving the fine and needing to backpay his tax. Sam held Professional Indemnity Insurance arranged through Aon, which helped cover the legal fees to defend his case, as well as the amount he was required to pay Bruce.
Yes. Professional Indemnity Insurance is also known as Errors & Omissions in some parts of the world, including the United States.
What are the limits on Professional Indemnity insurance?
Limits in the amount of cover will depend on the level of insurance you’ve taken out and the needs and circumstances of your business. You can consult our team of specialist brokers to help understand the coverage options available for your business.
How much Professional Indemnity insurance do I need?
This will depend on a number of factors such as your profession, your business needs and the clients you work with. Some professions are required by law to hold a minimum level of cover, and some clients may require you to have a minimum level of cover to work for them. Most PI Insurance policies start at a minimum cover of $1 million, but you should decide the appropriate limit for you and consult with your broker about this if you need to.
What is retroactive cover?
Retroactive cover is protection for claims which are based on services or advice you provided before the start date of your current PI insurance policy. When taking out PI cover, you may be asked to nominate a retroactive cover date or the insurer may impose one.
What is run-off insurance?
Run-off insurance provides coverage for claims made against you after your business ceases operating, or after you retire, based on advice or services you provided whilst in business. Depending on the policy, you may be required to pay additional premium to activate run-off cover.
Are Professional Indemnity insurance policies issued on a claims-made or occurrence basis?
PI Insurance is written on a claims-made basis. This means it will only cover claims made while the policy is in force. The claims-made basis of PI insurance means it is very important that any circumstances which may give rise to a claim, or any claim itself, be notified to the insurer as soon as possible after they occur. For example, if a client complains to you about your advice, your insurer should be notified at that time, rather than wait until a formal claim is made. If that client does decide to take legal action against you at a later date, you may not be entitled to cover if the insurer wasn’t notified previously.
As a professional, what other types of Insurance might I need?
Depending on your profession, and the nature of the work you carry out, there are several different policies you may need to consider. For example, if you have an office and have clients visit you, you can take out Business Insurance to help cover the cost to repair your premises if your office is damaged by fire, storm or other event, as well as Public and Products Liability to help cover you if someone is injured on your property or by your products. Cyber Insurance also offers important protection, which can help protect your business against cyber threats and other internet-based risks.
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