Professional Indemnity and Public Liability insurance, commonly abbreviated to PI and PL, is a key insurance for many SME businesses, helping
them transfer risk of a significant financial loss. The purpose of this brief article is to unravel it and explain the reasons why it is essential
Over 60% of small businesses close within three years. Having an uninsured PI or PL claim is likely to increase that number to closer to 100%. Sure, big firms need it but for smaller firms, their very survival depends on it. At a cost of a little as $2 a day, this policy could be a matter of survival for your business.
It is a principle of common law that people or businesses that are negligent need to be responsible for the financial consequences of their negligence.
In the modern world, negligence causing personal injury or property damage or simply financial loss to others can lead to substantial sums in damages. Negligence, or even unfounded allegations of negligence often also result in large legal bills while defending oneself or negotiating a fair settlement.
What is covered?
A Professional Indemnity policy covers your liability for financial loss arising out of negligent acts, errors or omissions in relation to your consultancy work. It also covers your defence costs and any costs awarded against you.
A Public and Products Liability policy covers your liability for personal injury or property damage arising out of your negligence, and the consequential losses arising directly therefrom, e.g. lost income or additional expenditure. It also covers your defence costs and any costs awarded against you.
5 key reasons your business needs a Professional Indemnity and Public Liability policy.
1. Contractual obligations and protection.
As a consultant you are taking on contracts with clients all the time. Look closely at those contracts and it is likely you are required to carry a certain
level of PI and PL cover.
Your clients are demanding you are responsible for your negligence but also that you have the financial backing of a reputable insurer to fulfill your obligations to them, should the need arise.
2. Enhance your professional reputation with clients and prospective clients.
Carrying this cover and confirming it to clients and prospective clients enhances your brand. It shows you have considered risk and protected your business from claims. It shows a commitment to the industry and your determination to be there for the long term. It gives your clients comfort that in the event of a negligent act, error or omission their claim against you will be well managed and treated fairly.
3. Prevent disputes from damaging ongoing client relationships.
Having a claim made against you for negligence is a difficult time in anyone’s business. If you are wishing to have a continuing relationship with that client (and others they may recommend) it can be doubly difficult. It is important that you can separate the claim negotiation from any ongoing commercial relationship or negotiation. Having an insurer professionally and unemotionally take over the claim negotiation can be a blessing, allowing you to focus entirely on the ongoing commercial relationship.
4. Access to professional help, including legal advice.
If a claim is made against you, even if that claim is false, fraudulent, frivolous or exaggerated you need to defend yourself. This is a distraction from
your work routine and is likely to take up significant time. Do you have sufficient legal or contractual knowledge to defend yourself or negotiate
It is common in such circumstances to consult a law firm for advice. How do you find the right one with expertise in the matter? You will need to fund the cost upfront and often, even if you are successful in your defence, your costs aren’t recovered. Legal representation is expensive.
If you are insured then you simply advise your insurer of the circumstances of the claim, or even the allegation and they immediately take over your defence, using expert lawyers and at their expense. (You will still need to pay the Excess you selected, if any.)
You and your insurer’s interests are aligned. Both want the claim (if fair) settled professionally, quickly and at minimal cost. Such action enhances your professional reputation with your client at a difficult time.
The policy will also cover any legal costs of the other side if they are awarded against you.
5. Protecting your personal wealth and family assets.
If you are legally liable for a negligent act, error or omission, there is no $ cap on that liability. Your business assets, your personal wealth and your
family assets are likely to be all at risk. Claims in excess of $1million are not uncommon. insuresME offers the abillity to purchase limits of up
Presumably you insure your home/ contents, your vehicle, your medical expenses, perhaps you purchase travel insurance. It would be logical therefore to also insure perhaps the most financially crippling exposure you have, your exposure to PI and PL claims.