What is professional indemnity insurance?
Professional indemnity insurance is designed to protect businesses, including limited company contractors and sole traders, against claims for negligence, such as making a mistake or giving bad advice. In addition, professional indemnity provides cover for loss of documents, loss of data, breach of intellectual property, and defamation and libel.
Holding professional indemnity insurance also serves as an IR35 indicator – as it is seen by HMRC as a marker of genuine self-employment which could contribute to an outside IR35 status determination.
What does professional indemnity provide cover for?
If you do make a mistake, for which you are responsible or are deemed to have been negligent, then professional indemnity insurance will cover compensation you have to pay as a result, as well as any legal costs that you may have incurred in the process.
You could be liable for tens or hundreds of thousands of pounds for a mistake, so it's vitally important to have the right protection in place. Professional indemnity insurance will also cover the cost of fixing any mistake you may have made, which could help you to avoid having a larger claim made against you.
You can see exactly what you're covered for with your professional indemnity insurance over on our What's Included page.
Is professional indemnity a legal requirement?
There is no legislation that requires professional indemnity insurance to be compulsory, but many clients and recruiters will stipulate that professional indemnity insurance is required in your contract and may ask for confirmation of insurance.
Professional indemnity is on a ‘claims made’ basis
Professional indemnity insurance operates on a 'claims made' basis. This means that contractors will only be covered for claims made against them during the term of the policy. For this reason, contractors should consider holding insurance even when they are not working, as this would protect you from situations where an error or omission is not discovered until after the contract has ended. So, if you move insurer, you should consider if you need retroactive cover.
What is retroactive cover?
Retroactive cover, otherwise known as retrospective cover, means that you would be covered for new claims made against work that was carried out before your policy started. Not all insurers offer this cover, and some charge an extra premium to include it. At Kingsbridge, we include retroactive cover as standard for professional indemnity; protecting you against any work you did up to six years in the past.
Do you have any professional indemnity claim examples?
A setting out engineer provided incorrect drawing measurements for the setting out of curbs, resulting in the main contractor having to rectify the works and delaying them by two weeks. The insurers appointed loss adjusters to investigate, liability was agreed, and the claim was settled. The engineer was covered by their professional indemnity insurance cover.
A draughtsman provided incorrect 3D drawings for a handrail which was then made per those designs. Subsequently, it was found that the drawings were done back to front, making them useless. The claimant had to obtain new handrails which caused a delay in the building project. Liability was subsequently accepted and the claim was closed. The draughtsman was protected by the professional indemnity insurance they held.
Frequently Asked Questions
- What is professional indemnity insurance?
- Protection against claims made against your business as a result of allegations of professional negligence. Cover includes legal defence costs (incurred with insurer's prior agreement) and any damages awarded. Negligence claims can be made against any company providing professional services.
- Is professional indemnity tax deductible?
- It is a business expense! Once you have purchased your policy, your receipt will come through almost instantly with your documents, you can then use this to claim back the expense. You should always discuss your tax requirements with your accountant.
- Is professional indemnity a legal requirement?
- Holding professional indemnity is not a legal requirement, however, it can be a requirement of your contract with a recruiter or end client.