If you own your own business, operate as a sole trader or work as a freelancer, then you are solely responsible for any legal implications arising from your work. Any contracts you sign as part of performing a professional service will generally stipulate that all legal liability resides with you.
In today’s world, litigation is increasing and any claims against you, be they legitimate or unfounded, will typically require significant funds to investigate, defend and settle. The damage to reputation can also take a financial toll on your balance sheet.
Professional liability insurance – often referred to as professional indemnity insurance – covers liability for damages arising from the rendering of, or failure to render, professional services. It protects your business from claims that are not covered under a commercial general liability policy.
Professionals who typically look for this category of liability insurance cover include architects and engineers, doctors, lawyers, multimedia firms, real estate brokers, IT companies and accountants. However the term ‘professional’ has been extended in recent years to cover any person who provides ‘high knowledge intensity’ services or advice for a fee. As such, professional indemnity may be an insurance policy worth considering.
Professional Liability considerations
The need for professional liability coverage has largely developed because standard general liability insurance policies only respond to bodily injury, property damage, personal injury or advertising injury claims. Professionals, however, often face claims that lie outside these categories and suitable coverage is required to give additional protection.
Typically claims made under professional liability policies include negligence, misrepresentation, violation of good faith and fair dealing, inaccurate advice, libel and slander.
For example, if a Web design platform fails to perform satisfactorily, it is not likely to result in claims for bodily, property, personal or advertising injuries. A general liability policy would not be triggered. However it may lead directly to financial losses for the customer, which may be attributed to a misrepresentation of the platform’s capabilities. In such a case, a professional liability policy would be triggered.
What does a Professional Indemnity policy cover?
While policies may vary according to the insurer, professional indemnity insurance would typically cover the following:
- The costs of investigating, legally defending or settling claims
- Costs associated with personal injury or property damage claims
- Civil liabilities – defamation, theft of intellectual property, copyright infringement, alleged breach of duty, negligence, misstatement, breach of warranty of authority committed in good faith etc.
What doesn’t a Professional Indemnity policy cover?
Again, policies may vary according to the insurer but a professional indemnity insurance policy would typically not cover the following:
- Intentional damage or wrongdoing
- Illegal acts
- General liabilities including property damage
- False advertising
- Claims and/or circumstances that were known to the insured prior to the inception of an insurance policy.
Although you may be confident in your abilities and have a proven track record of satisfactory performance, that does not negate the possibility of legal action being brought against you. With the emergence of ever stricter professional regulatory and contractual requirements, it is increasingly necessary to consider professional indemnity insurance cover in order to protect against the potential costs of any claims you might face in the future.
Contact Alan Fong for more information.