There are a range of professionals in the working environment, each with a different purpose and duty. Some professionals provide products, and some provide services. Professionals who provide services have a serious responsibility to their clients. It is common for clients to trust these professionals with no questions asked, hoping for the best advice/service. These professionals include doctors, financial consultants, architects, personal trainers and many more.
Their duties include instructing their clients with their expert knowledge in their field. For example, a doctor will advise their patient what illness they have and what medication they should take. They are liable for anything related to the service they have provided and how it impacts the client. Although, at the end of the day, they are only humans, and errors do happen.
These errors and omissions by professionals can have a significant negative impact on the professional and the business. In many cases can even lead to lawsuits, fines and loss of professional licences. These risks are why there has been an increase in professionals purchasing professional Indemnity insurance (PI) to protect themselves against these claims and save them from a sizeable financial loss. This article will explain why Professional Indemnity Insurance (PI) is crucial for many service providers.
What is Professional Indemnity Insurance (PI)?
Professional indemnity insurance (PI), also known as errors and omissions insurance (E&O)- provides coverage for professionals and businesses to protect against claims of negligence from clients or customers. PI policies will cover the insured against loss from any claim(s) made during the policy period because of any covered error, omission or negligent act committed by the insured’s professional business.
In addition, professional indemnity insurance helps cover claims of negligence, misrepresentation, inaccurate advice, and more. It is not easy to predict claims and mistakes as a business or a professional, but it is easy to be protected with Professional Indemnity insurance.
How Professional Indemnity Insurance Protects Professionals?
When a client provides payment to a business or professional, they expect and deserve the best quality service in that field. The professional should provide the service to benefit the client and have a duty of care towards the client. The professional and business are responsible for the outcome of their services provided, whether positive or negative. There are cases where a professional may be held liable for negligence. Negligence is when a professional or business has failed to carry out the duty of care to clients. Therefore it’s basically when a professional doesn’t do what is intended for the client. Such negligence can result in the client being affected negatively. The client has full rights to sue the business or professional for their losses.
An example of negligence in the working environment is when an architect provides flawed designs. As a result, the final product does not match the client’s expectations and what the architect promised. The architect is liable for the flaws in the structure, and the client will sue for the costs of fixing the structure and compensation. Such cases result in the business facing financial loss and also reputation damage.
Professional Indemnity insurance (PI) is a perfect cover to protect the business and professionals involved in these situations. Professional indemnity insurance will provide the company with the cover of the cost of the claim and defence. The insurer’s assistance will help the business avoid significant financial loss and focus on future projects. In addition, PI insurance understands mistakes do happen and help professionals when they need it the most.
Most businesses try to make their services stand out and sound the best to attract clients by upselling. Upselling is a very common practice when there are many competitors in the industry, and it can be successful in its way. However, at the same time, it can also be recognised as misrepresenting, as a business may not provide what they are advertising, even though they may believe they do.
Misrepresentation can significantly impact a business and cause vital damage if clients feel it has affected their outcome or experience with the business. A business can misrepresentation accidently, where the firm had reasonable foundations to believe their statement was true. The client can sue a company either way for not providing the service represented. For example, a real estate agent sells a house with damages and electrical issues, but the agent tells his clients nothing is wrong with the house. The client will suffer financial loss after buying the home to pay for additional repairs. The client has the right to sue the professional for providing mispresenting information when signing a deal and making payments.
Professional Indemnity insurance (PI) in these cases will provide cover for defence and compensation costs. In addition, Professional Indemnity will help the business explain their side in court, which will help them show that the misrepresentation may have been accidental. Insurance could solve the case with a compensation settlement. Solving the issue quickly with PI insurance will help the business avoid reputation damage and more significant financial loss.
Inaccurate Advice Claims
To succeed in the service industry, employees need to provide the best and accurate advice to benefit clients and customers. It is the advice they give that builds the reputation of the business. The more benefits the customers gain through the advice, the more likely clients will share the company with others. However, there are times that a business may provide inaccurate advice that will harm the clients. Inaccurate advice is mainly accidentally done by an employee and can affect the company as a whole. Incorrect advice can cause financial loss, physical harm and more to the client.
Doctors are often victims of inaccurate advice claims, as doctors can provide incorrect advice that can leave the client feeling frustrated, let down, and suffering financial loss. For example, in Hong Kong, a father of a disabled child is suing a doctor for HK$500 million in the largest claim of its type for alleged inaccurate medical advice. The court heard the instructions given to the midwives over the phone while the doctor was at another clinic.
Experts reported after the doctor gave the prescribed medicines to the father, the baby’s heartbeat kept declining for half an hour before the delivery. The father had full rights to sue the doctor for inaccurate diagnoses and any illness resulting from their advice. When a company or individual deals with such claims, they will lose a considerable amount of money and affects future client prospective.
Similar to the above claims, Professional Indemnity insurance (PI) will cover the claims’ cost and help with business provide compensation fees to the client. Therefore, professional indemnity insurance will help a business save a large sum of money and also solve the claims as soon as possible to avoid reputation damage. PI insurance companies understand mistakes happen no matter how careful a professional is. Although it is essential to understand PI will only cover costs if the injury to the client is due to the given professional advice.
Intellectual Property Claims
A company tries their best to make their work original in the best way, but sometimes it is not as easy as it seems. There are millions of companies in this world, and sometimes work and ideas that we think are original may not be. It is common to take inspiration from other work or even use a picture on a website that the company may not own. Most of the time, a professional will assume that there is nothing wrong with using another companies idea or picture from google images. However, using unoriginal work is breaking the law, as the company or professional does not own rights to a property. When caught by the work owner, it can result in a lawsuit and intellectual property claims. Such claims can cost a company sizeable financial compensation and also reputation damage.
Most of the time, it can be accidental, and the company and professional may not be aware that they have stolen work or broken the intellectual property laws. Types of claims include copyright, trademarks, patents or trade secrets. A famous fascinating example comes from the movie Hangover 2; we all remember that Mike Tyson tattoo that the Hangover character woke up with on his face. Interestingly Tyson’s tattoo artist S.Victor Whitmill filed a lawsuit against Warner Bros. Since he registered a copyright for the artwork. He claimed that using his design in the movie and advertisements without his consent was copyright infringement.
Professional indemnity insurance will protect the company against intellectual property claims. By proving the cost of compensation, defence cost, and also assisting if there was reputation damage. Thus, Professional Indemnity insurance can save the company and professional a large sum of money and repair any damage.
Do I need Professional Indemnity Insurance?
As you can tell, Professional Indemnity insurance (PI) is an insurance that can save a professional and a business from various claims and unfortunate situations. So, now you must be wondering, “Do I need Professional Indemnity insurance?”. Well, if you provide any clients or customers advice, you likely need the insurance. Working for yourself gives you freedom but also increases risks. As mentioned, we all make mistakes, and it is harder to fight against claims as one person. Therefore, professional indemnity insurance is crucial to individuals like freelancers, tutors, private consultants, life coaches, etc.
How careful a business or professional is mistakes do happen, and as shown in the examples, some lead to lawsuits. Surprising claims is why companies or individuals need to purchase professional indemnity insurance (PI) to be prepared for such claims and avoid the financial and brand-damaging risks that follow with errors and omissions claims.
Even if your employee is the one that is at fault for the claim, you may still have to defend yourself. Therefore it is crucial to understand if you, your business or even your employees need professional indemnity insurance and avoid the claims before it is too late.