Professional Indemnity insurance, (often referred to as “Errors & Omissions” (E&O) in some parts of the world), is an insurance contract that indemnifies (insures) a professional individual or business against breach of duty or negligent acts. Professional Indemnity is purchased by thousands of professionals – ranging from compulsory purchases such as Accountants, Solicitors/Lawyers and more recently Cladding Contractors to ‘non-mandatory’ professions such as Business Consultants and IT Contractors.
With such variety of cover options and insurance clauses, we always recommend in working with independent brokers such as Servca to establish the best cover options and premiums for you or your business.
What does Professional Indemnity cover?
There are typically three main types of coverage that a Professional Indemnity/Professional Liability insurance contract offers:
Contractual Liability – not caused by negligence
This is often excluded from professional liability policies and occurs when a professional signs up to a contract which might impose a liability going beyond that normally expected in law. Examples include liquidated damages e.g. late delivery penalties, or accepting liability for otherwise unforeseeable economic loss e.g. business interruption, acts of God etc.
Contractual liability is an important issue so take care when agreeing with clients the responsibilities you will and will not take on. Insurers recognise however, that some professions demand flexibility in that clients may insist on some contractual exposure. In these instances, insurers may offer to cover an element of contractual exposure such as collateral warranties. It is always advisable to check and compare policy wordings to ensure that meets the requirements of your business to ensure that it will offer a pay-out of the event of a claim.
These are generally covered by professional liability policies, subject to the insurers’ consent. They cover the costs of investigation and defence. Assuming the insured (and the insurers) wish to challenge the claim, it may be necessary to employ legal professionals and expert witnesses. Usually the insurers will have arrangements to appoint the necessary representation on the insureds’ behalf. The costs are sometimes included within the limit of indemnity (‘cost inclusive’), or they may be in addition (‘cost in addition’).
Policy excesses are generally applicable, however some insurers may or may not apply to the costs and expenses.
The usual cover
In addition to standard cover, many Professional Liability policies often include:
- Libel and slander
- Loss of documents
- Dishonesty of employees
- Unintentional breach of confidence
- Infringement of copyright and intellectual property rights
- Previous firms or previous partners
The usual exclusions
Typically, PI policies (subject to which policy wording you opt for – for example a Medical Indemnity policy wording will cover bodily injury and a Financial Institutions policy wording will cover you for Crime, Insolvency/Bankruptcy.
It is absolutely essential that you chose the correct policy wordings for your business. Most trade groups have their own specialist set of wordings, often approved by their regulators – such as Accountants, Engineers, Architects, Surveyors, Medical Indemnity, Financial Institutions, Solicitors’/Lawyers and Insurance Brokers/MGAs. Exclusions often include;
- Employers liability
- Bodily injury/property damage, except where caused by a breach of professional duty
- Property owners, etc
- Vehicles, etc.
- Products liability
- Contractual liability – this is liability assumed under any express warranty, agreement, guarantee or the like, unless such liability would have attached anyway.
- Insolvency/bankruptcy of insured
- Circumstances known at inception
- Fines and penalties
- Claims by financially associated parties. Some insurers will cover these claims if they emanate from a third party
- Radioactive contamination, etc.
- Seepage and pollution. Many insurers maintain this exclusion even where there is a clear and insurable environmental exposure
- Date recognition
- Extensions to the policy
Professional Liability policies often (but not always), carry some or all of the following extensions which do not require the test of negligence. If they are not automatically included, it is important to request the ones pertinent to your business – these can often be added by way of ‘Endorsements’.
It essential, to consider the policy wording applied, as this may make some or all of the extensions redundant. Some extensions are subject to inner limits and differing excesses to main policy. This will affect the ability of your cover to pay and react to any claims/complaints made against you.
- Loss of documents - This provides cover to the policyholder for the costs of repairing or replacing documents damaged or destroyed whilst in their possession. This includes some circumstances in which computer documents are lost, but does not extend to covers provided under a computer policy. These can be the client’s own documents or those of a third party.
- Libel and slander - This provides cover for actions brought against the policyholder for libel, slander or defamation.
- Dishonesty of employees - This provides cover for fraudulent acts by employees. It does not include acts by partners and directors.
- Breach of copyright and unintentional breach of confidentiality - Cover for infringement of design or disclosure of privileged information.