07 Jun Why you need Professional Indemnity Insurance
Why you need Professional Indemnity Insurance
Sometimes, it’s not a matter of whether or not you think you have erred in the course of your “professional” duty, but whether another party thinks you have, causing them to suffer a financial loss.
That’s where Professional Indemnity insurance steps in, but more particularly, Legal Expenses/Defence Costs. If you provide advice or services in your work, it’s important to protect your business against claims of malpractice or professional misconduct.
In real terms, this means that if you do something (or neglect to do something) in the course of your work, and a client suffers a financial loss as a result, they may take legal action against you. This applies even though you may have provided your services free of charge or to people who were not party to your contract.With a Professional Indemnity policy, you can defend your business against the claim and prevent financial loss.
Do I need Professional Indemnity Insurance? It costs time and money to defend against a claim of negligence, professional misconduct, or breach of duty. You could be held responsible not only for your own actions, but also for those of your partners, employees, contractors or volunteers.
Many businesses underestimate the real cost of legal action. The cost for a defence could be around the $100,000 mark. Many businesses – especially small businesses – would struggle to fund these costs.
In a real life case study handled by an Australian insurer, a business owner involved a lawsuit that extended to $1 million in legal fees alone over several years. His insurance premium covered all associated costs and the case was handled by the Insurer. More importantly, he was proven not to have been negligent.
Claims can arise against you in a number of ways:
- for negligence if you fail to exercise the standard of reasonable care for your trade/occupation/business/job/profession,
- for defamation,
- under the misleading or deceptive conduct provisions of consumer protection legislation, or
- for breach of a contract to perform a job/occupation/business/profession.
But I have Public Liability Insurance – isn’t that enough?
No, it’s not enough. In fact, it’s almost like having a Motor Vehicle policy to cover your Home; they’re that different.
Covers third party personal injury and property damage in connection with your business.
Example – High Rise Construction – Cranes
65m Crane on a high rise building site caught fire and crashes down.
A member of the public walking along the construction site is injured. The falling debris also damages other buildings close to the site.
Covers actual breach or alleged breach of your professional duty (in respect to advice given (with or without a fee).
Example – Building Designer – Stairs
Building designer prepared plans for a second story extension which included a staircase with landings and no window – preliminary drawings only for the purpose of obtaining council permit. Extension was undertaken; the builder did not use the design, but substituted his own, which included a winder. Family staying in the house and early one morning grandmother carrying a baby down the stairs stumbled in the darkness at about the point of the winder; fell along with the baby. Parents sued the grandmother in negligence (failing to switch on the light) and her insurers joined the builder, the staircase manufacturer and building designer, alleging he had failed to design enough risers in drawing the staircase in the first place.
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