Do I Need Professional Indemnity Insurance?
Professional Indemnity Insurance for Limited Companies
If you’re a freelancer or contractor, it’s always advisable to ensure you have Professional Indemnity (PI) Insurance – especially if you’re running your own Limited Company.
We appreciate that understanding insurance policies and what they protect you against can be confusing. In this article, we answer some frequently asked questions about Professional Indemnity Insurance, including: “What is Professional Indemnity Insurance” and “Why do I need it?”
Don’t forget: Professional Indemnity insurance is included as standard for JSA Umbrella contractors and is included in our Express Plus and Liberty Plus accountancy packages for Limited Company contractors.
Professional Indemnity Insurance (also known as Professional Liability Insurance) should be set up to protect you and your business in the event that one of your clients suffers financial loss from work you’ve done for them. While this may be rare, we all make mistakes from time to time, so you must be covered just in case something goes wrong to ensure your business isn’t subject to big financial losses.
What is Professional Indemnity Insurance?
Professional Indemnity (PI) Insurance is a type of business insurance that covers you if a client you have done work for takes legal action against you for their financial loss as a result of your mistake or negligence.
The insurance will cover the costs of your legal defence and any appropriate rectification costs (the costs of making the mistake right).
What does Professional Indemnity Insurance cover?
PI insurance can cover you for mistakes including:
- Professional negligence
- Unintentional breaches of copyright and/or confidentiality
- Data protection prosecution defence costs
- Loss or damage to documents
Who needs Professional Indemnity Insurance?
If you’re a professional in the UK who offers advice or guidance, consultancy, design services, data handling/processing or management of intellectual property, PI insurance is an essential policy to safeguard you and your business from anything that goes wrong.
Although PI insurance isn’t legally required, it is often a compulsory requirement for members of professional bodies, including solicitors, accountants, financial advisers, and architects. Plus, some clients may make PI insurance a requirement of contractual agreements.
Even if you’re not required to have PI insurance by your governing body or a client agreement, we would always recommend you invest for your own protection.
Professionals who can benefit from a comprehensive Professional Indemnity insurance policy include:
- Business consultants
- IT contractors
- Teachers & tutors
- Designers & web designers
- Social worker
- Construction contractors
Please note: Professionals in certain sectors (e.g. Accountants, Solicitors) may need specific Professional Indemnity insurance, tailored to their needs. You should check if your work can be covered by the PI cover that comes as part of our Plus packages.
Why do I need it?
Since PI cover can protect you against contractual liabilities, tort liabilities, and breach of statutory duties, choosing to operate without it leaves your business open to any claims brought against it, meaning you’d be responsible for any rectification and legal costs if you were to make a mistake.
Contractual liabilities – Many commercial contracts will have a clause relating to deliverables and duties to be carried out with ‘reasonable care and skill’. If a client claims against you, they may try to demonstrate you have failed to carry out their project with ‘reasonable care and skill’.
Tort liabilities – If you’re operating without a contract, clients may make a claim against you under Tort Law, which covers intentional and accidental acts including negligence and defamation. Tort law usually requires a payment to rectify a mistake that may have damaged the client’s reputational or economic interest.
Statutory duties – PI insurance will cover you against breach of statutory duties (relevant for architects, accountants & quantity surveyors), breach of intellectual property (including trademarks, copyrights, media rights, patents, and plagiarism), and breach of fiduciary duty where a client believes you aren’t acting in their best interest.
You should view PI insurance cover as an investment in your business because it can be vital for ongoing protection for your business should mistakes occur.
For more information, please get in touch with our expert team who will be happy to provide tailored advice on your requirements and responsibilities.