Professional Indemnity Insurance (PI) provides indemnity (or compensation) against loss arising from claims made by unsatisfied clients. PI cover protects you by providing funds for the cost of defence against claims that there has been a breach of duty whilst acting in a professional capacity.
PI for advice-based companies
PI has been developed from the change in working patterns from manufacturing to services. These services often involve the professional giving advice on a specialist subject such as marketing, interior design or accountancy. Businesses involved in this type of advice-based service can be exposed to claims of professional liability.
Two types of professional liability
There are two different types ofprofessional liability which can bebreached:
Contractual duty
The relationship between the professional and the client is often one of contract. This means that there is a contractual duty on the professional to perform services to the best interests of the client. Most PI claims are boughtunder contractual breach.
Tort
Tort often involves negligence,infringing intellectual property, loss ofdocuments or data and dishonesty. Tort is often described as a civil wrong which gives rise to action for damages.
Outline of PI claims
A claim on PI is likely to result in a client claiming compensation for:
This can cause a large financial drain, not to mention damage to professional reputation. For a claim to be successful, it must be demonstrated that the professional has departed from the accepted standard of their profession. However, even when a professional can successfully defend a claim, they still may incur a financial loss.
