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CO-WRITTEN / PARTNER | Staff Reporter, Hong Kong
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Professional Indemnity: No Individual or Company are Safe

This insurance policy provides protection for businesses offering advice or services to third parties.

In today’s business world, where others are eager to gain advantage, litigation is increasing. Any claims against you, be they legitimate or unfounded, will require significant funds to investigate, defend and settle. The damage to reputation can also take a huge toll on your balance sheet.

A Professional Indemnity (PI) or Professional Liability Insurance policy will indemnify insured parties for losses that they become legally liable to pay as a result of claims alleging a breach of their professional duty in the provision of their professional services, as well as associated legal costs in defending such claims. A lawsuit can be brought against any professional for alleged or actual mistakes and even if no error was made, simply defending these suits can be very costly.

Professional indemnity insurance provides protection for businesses, sole traders or freelancers who offer advice or services to third parties, including both the general public and other businesses. As a result of the professional services that you offer, you owe a duty of care to those who might rely upon what you tell them. This means that a vital part of your insurance will be Professional Indemnity (PI) cover. A PI policy can offer coverage for compensation you may need to pay to correct a mistake you made, or cover any legal costs due to negligence, such as giving incorrect advice.

Traditionally, the coverage was closely connected with high-risk professions such as lawyers, doctors, engineers, accountants and financial advisors. Nowadays, the term “professional” is applied broadly and as such many different professions should carry Professional Indemnity Insurance.

Companies that perform professional services for others can make mistakes, overlook a critical piece of information, misstate a fact, or be misunderstood. They can be sued by their clients over allegations such as: error, omission, or negligence in providing a service; failure to provide a service, fraud, improper documentation, malpractice, nondisclosure, violation of state and federal law. 

When providing a quotation, insurers consider a number of factors in determining the type of coverage and terms and conditions that will be imposed. Considerations include (but are not limited to): scope of professional services provided; annual fee income or projected revenue; split of activities across different jurisdictions; claims history; the scope of coverage including the limit of liability and deductible required.

Case Study
Let’s take an example of the Interior Designer who accepted a contract for the design and fit-out of a boutique hotel. The configuration of the lift and lobby area did not meet the original project specifications in that there was not sufficient room within the concierge and reception area. This resulted in additional costs, materials and time delays to the project, all of which the Interior Designer was held liable for.

What isn’t covered by a Professional Indemnity policy?
Policies may vary according to the insurer but a professional indemnity insurance policy would typically not cover the following: Insolvency, Terrorism, Intentional damage or wrongdoing, pollution, general liabilities including property damage or bodily injury, pending or prior circumstances and/or claims.

Why take the chance with a lawsuit that could financially cripple your company?
We now live in a World with ever increasing demands being placed upon the services that we offer, and mistakes are not easily forgiven. Place this against a backdrop of a tightening regulatory and contractual framework that we all work within, and the risks are clear. No professional is safe without the right PI insurance to protect them from civil liability as well as financial and reputational loss. Can you afford not to be covered?

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