Many contracting businesses who do not specifically design anything for a fee will be unaware of the potential risks they may face in not carrying Professional indemnity cover. In the increasingly litigious society we live in, where it would seem that everyone wants someone to blame, should you consider cover just to protect yourself if something goes wrong? Often contracts will stipulate that Professional Indemnity cover is required but is this just ticking boxes or it is really necessary?
Professional Indemnity Insurance reacts in circumstances where a client claims to have suffered a financial loss as a result of a professional error made or alleged to have been made through services provided. You could argue that even though there has been no error, a policy would provide cover to defend you which would avoid heavy legal fees should the need arise. Contractors may incur design exposures even when they have no contractual liability for design. For example, they may have to make changes as the construction progresses following problems encountered on site.
Contractors have a huge amount of practical experience but are not design professionals and it is often when this practical knowledge, combined with professional expectations, that things can go wrong! Professional designers are not unknown to design something that cannot actually be built and the contractors input may achieve everything intended. However, if it does go wrong, everyone will be pulled into the claim and if the contractor does not carry their own Professional Indemnity cover this can become extremely expensive.
Professional Indemnity cover is arranged on what is known as a ‘claims made basis’ rather than the traditional ‘claims occurring’ which would apply to Employers or Public Liability incidents. This means the insurer on cover at the time an allegation is made would be responsible for the claim rather than the one on cover when the error occurred. It is therefore very important to review your policy carefully at each renewal, particularly if there is likely to be a change of insurer, to avoid any difficulties should an allegation be made after renewal. This also means that cover needs to be purchased for a further period after completion of the work to ensure full protection continues.
There are advantages of having Professional Indemnity Insurance:
- Peace of mind
- Your business presents a professional image with a complete insurance solution, potentially opening doors to new clients.
- If you’re a small contractor it can aid your business position in relation to IR35 regulations evidencing that you are genuinely self employed.
- Cover also includes legal fees for defence should the unthinkable happen.
Premiums vary depending on the nature of your business and the risks involved but can be controlled by good risk management, discussions about indemnity limits and cover for any one claim or in the aggregate.
For very small businesses or sole traders professional negligence claims may not seem to be much of a threat because it hasn’t happened yet but it only takes one complex issue to take up management time and this can really threaten a business.
If you would like to discuss this cover in more detail, or to request a quotation, please do not hesitate to contact your Account Manager, or a member of the team, who will be happy to help.
By Jo Elliott ACII – Account Executive