Do You Need Professional Indemnity Insurance or Professional Liability Insurance?

Professional Indemnity insurance is insurance taken out by professionals as protection against legal liabilities to third parties which may arise for injury, loss or damage as a result of or following upon negligent acts, errors or omissions committed by the professional in the course of his/her professional duties.

The most obvious and well-known areas where professional indemnity insurance is required is the medical profession, but there are other professions for which professional liability insurance would be a good idea, such as for example translating. A mistake by a translator in a legal or technical document could have disastrous consequences and as a result freelance translators often prefer to take out insurance to cover themselves against such eventualities. PI should cover breach of duty, civil liability, contractual liability not caused by negligence, negligent act error or omission.

Professional indemnity insurance has the following main features:-

Professional indemnity insurance should cover the firm, not the interests of their client or third parties
Any policy will only pay if and when the liability of the person insured has been established
The policy normally runs for one year
Insurance premiums represent a significant element in a company’s running costs
The policy must cover any costs relating to legal defence if a claim is filed
Professional indemnity insurance is agreed on a “claims made” basis, by which is meant, cover relates to claims (actual or potential) against the company notified during the period of insurance, regardless of when the negligent act or omission occurred.

Professional Indemnity Insurance is generally obtained by professionals who provide advice to their clients. Two categories of business take out PI: voluntary and involuntary. The involuntary category is required by federal or state legislation to obtain cover.

Industries that commonly take out Profesional Indemnity insurance include:-

Consulting
Accounting and Financial Services
Legal (involuntary)
Information Technology
Medical (involuntary)

As with all forms of insurance there are exclusions

Some things require more specific insurance:

•Employers liability
•Property owners, etc.
•Bodily injury/property damage, except where caused by a breach of professional duty
•Products liability
•Vehicles, etc.

There are also more general exclusions:
•Insolvency/bankruptcy of insured
•Contractual liability - this is liability assumed under any express warranty, agreement, guarantee or the like unless such liability would have attached anyway.
•Circumstances known at inception
•Claims by financially associated parties - some insurers will cover these claims if they emanate from a third party
•Fines and penalties
•Radioactive contamination, etc.
•War
•Date recognition
•Seepage and pollution - many insurers maintain this exclusion even where there is a clear and insurable environmental exposure