Contractors, like any other business owner, have to cover their backs against legal action taken against them as a result of them performing their professional duties. Professional Indemnity Insurance is therefore one of the most important types of insurance your business (or you as a contractor) can invest in. It is not just important to you – often you will find that either your industry regulator will insist on you signing up to some kind of professional insurance. Similarly you will also find that clients prefer contractors who have professional indemnity insurance as it provides them with one more layer of protection and one more level of confidence in you as a contractor.
So what exactly is Professional Indemnity Insurance? As with most things, it does what it says on the tin – protect and insure you in the day to day activities of your profession. Whether you as a contractor provide a service or some kind of advice, this kind of insurance will protect you when things go wrong and one of your clients or customers ends up taking you to court. This can happen even when you have done nothing wrong and might just be because you have an awkward client In the event of this happening you could be faced with crippling legal costs and if the case goes against you, debilitating compensation payments. Professional Indemnity Insurance is the safety net if such an unexpected eventuality does happen and it could end up saving your business.
You might well be asking yourself – do I need it? If any of the following scenarios apply to you then you almost certainly do:
It might be that you feel your work or your service is of such quality that no one will ever be able to take you to court. That may well be true, but if your service has even a remote possibility of being challenged or subjected to any kind of negligence claim or have a client claim the service did not meet their expectations then you should think about this kind of insurance.
Ok, What Does It Normally Cover? Most policies will cover you in the event of claims for the following scenarios:
(1) Claims of negligence– if your services or advice are brought to court on a claim of acting negligently in the provision of those services, a policy such as this would cover you. Whether you are providing design advice, security advice, financial advice or any kind of consultancy – you’ll be covered for all claims, founded (such as if you make a mistake in a piece of work for a client, or have given them some bad advice) and unfounded.
(2) Claims About Your Supply of Deliverables – Whatever you are due to deliver to a client, from goods to prototypes, hardware to computer software or design, you will be covered should one of your clients challenge your delivery.
(3) Claims Regarding the Loss of Documents – If professional documents belonging to your client are lost or damaged whilst you are responsible for them you will be covered.
(4) Claims Against Infringement of Intellectual Property – such as when you accidentally infringe copyright whilst working on a project for someone.
(4) Claims for unintentional breach of confidence, a confidential duty or misuse of any kind of information – such as when a solicitor accidentally discloses some confidential information about their client.
What then should you look for in a policy? Ideally, you should look for a policy that covers you for between £5 and £10 million and which is specific to your industry and profession. Find a team of specialist brokers to tailor-make a package for you. Also look for a policy that is paid in monthly instalments and if possible, is retrospective – ie covers you for work done in the past too.
John Yerou is a pioneer of contractor mortgages and owner and founder of Freelancer Financials, Contractor Mortgages®, C&F Mortgages and Self Employed Mortgages, trading styles and brands of the award-winning Mortgage Quest Ltd.