What is professional indemnity insurance?
Professional indemnity insurance is designed to protect contractors against claims for negligence (such as making a mistake, or giving bad advice). It also provides cover for loss of documents, loss of data, breach of intellectual property, and defamation and libel. Holding professional indemnity insurance also serves as a key IR35 indicator for contractors - it is seen by HMRC as being a key indicator of genuine self-employment.
If you do make a mistake for which you are responsible or are deemed to have been negligent, then professional indemnity insurance will cover any compensation you have to pay as a result, as well as any legal costs that you may have incurred in the process.
A mistake could end up costing a contractor tens or hundreds of thousands of pounds 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.
To give you peace of mind, at Kingsbridge we also include retroactive cover as standard; protecting you against any work you did up to six years in the past. Even if you're accused of a mistake and you don't think you were negligent, it's still costly to defend yourself. Professional indemnity insurance provides you with the protection to be able to defend the claim.
Although there is no legislation that requires professional indemnity insurance to be compulsory, the vast majority of freelancers and contractors will find that agencies and end clients will stipulate that professional indemnity insurance is carried by anyone operating under a contract for services. This provides protection for the end client if the work of the contractor isn't up to standard and, as such, professional indemnity insurance is now a prerequisite for almost all contractors, freelancers, and independent professionals.
Professional indemnity insurance operates on what's known as a 'claims made' basis - contractors will only be covered for claims made against them during the term of the policy. For this reason, we recommend that contractors maintain their policy even when they are not under contract, protecting you from situations where an error or omission is not discovered until after the contract has ended.
You can see exactly what you're covered for with your professional indemnity insurance over on our What's Included page.
Do you have any example claims?
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 in accordance with 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.