Professional Indemnity Insurance at a Glance

What is Professional Indemnity Insurance?

Anyone can make a mistake – and if your business is found liable for negligence, the costs can be financially devastating.  Not only can it lead to an expensive lawsuit, but your Business’ hard-earned reputation may be damaged as a result.

That’s why Professional Indemnity Insurance matters – helping protect your assets and brand if your advice causes a client to take legal action against you.

Who should consider it?

Professional Indemnity Insurance is mandatory in some industries, such as Medicine, Accounting, Law and Financial Advisers and some professions in the Construction industry – with the requirements differing from State to State.   Even in cases where it’s not required by law, it’s recommended for anyone who is providing professional services or advice in exchange for a fee – for example, Graphic Designers, IT Consultants, Architects, Engineers and more. Regardless of your legal obligation, it’s often a customer requirement that you have this cover in place.

“If you own a business, you can be liable for damages or injuries to another person or property… consider professional indemnity insurance for your business if the likelihood of legal action is high.” Australian Government, Business.gov.au

Did you know?

According to the National Claims and Policy Database as at December 2021:

2020 PL for Underwriting Year:  Gross Written Premium was $2,913million, up from $2,709 million in 2019

2020 PI for Underwriting Year:  Gross Written Premium was $2,617million, up from $2,237 million in 2019

In 2020, Professional Indemnity and Public Liability claims increased by 0.3% from $100,234 million in 2019 to $100,495 million in 2020.

PI Risks Written increased 3.9%:

2019:  874,448

2020:  908,928

PL Risks Written increased 3.7%:

2019:  3,063.999

2020:  3,176,744

What can it cover?

Type of cover and potential benefits:

  • Allegations by third parties for a Breach of Professional Duty
  • Alleged misleading or negligent advice
  • Civil Liability - Civil liability to a third party arising out of the conduct of their professional business.
  • Inquiry costs - The cost of defending an inquiry by a regulatory body into the professional conduct of the insured.
  • Defence costs - The costs involved in defending a claim triggered by the policy.
  • Defamation, Libel, or Slander allegations
  • Fidelity cover - Direct financial loss of the business caused by the dishonest or fraudulent conduct of an employee which is first discovered during the period of insurance.
  • Advancement of costs and expenses - Additional costs and expenses incurred during a claim.

What usually isn't covered?

Exclusions, the excess you need to pay, and limits of liability can vary greatly depending on your
insurer. Policies generally won’t include cover for:

• Contractual or commercial liabilities
• Liabilities which result from fraud and dishonesty
• Employment Practices Liability Pollution
• Unpaid fees / trading debts
• Intentional damage or misconduct

Case Study

1. A builder (the insured) was contracted to draft and submit plans for a large concrete slab which was to be the foundation of a large storage building. The first draft he submitted required amendment so a second draft was submitted and approved by the client.

The concrete slab was laid as per the plans submitted by the insured and the storage facility was constructed.

A claim was lodged against the insured when cracks appeared in the concrete slab. It was subsequently found through investigation that the insured had submitted the first draft for construction instead of the amended second draft. Indemnity was granted in respect of the claim and the facility eventually had to be demolished and rebuilt from the ground up. Including legal and investigation costs, demolition and rebuilding costs, the total payout amounted to $7,800,000 *

2. A financial adviser provided advice to a client in relation to a lump sun investment. The client’s requirements included an investment plan which would provide a certain level of income per year and a minimum risk of capital loss. The adviser recommended investment in a particular fund, which supposedly satisfied the client’s requirements. It turned out that the client did not receive any yearly income but also suffered a capital loss during the two year investment period.

The adviser also failed to provide any updates to the client during the two year investment period regarding the state of his investment. Furthermore, at the time of the original investment, there were clear signs that the fund was starting to perform badly. It was alleged that the fund was of a sophisticated nature that did not suit the client’s needs. Therefore inappropriate advice was provided. The adviser had few defences to the inevitable claim made against him and the claim was settled out of court for $175,000 (including all costs). *

*QBE Case Studies – Professional Indemnity Insurance Claim

Contact us today!

Ensuring you have the correct Professional Indemnity policy in place begins with a quality conversation with an experienced Broker. 

Speak to a broker today! Fill out a contact form below.

Cover is subject to the policy terms, conditions and exclusions.

This information is general in nature. To read our general advice warning click here.

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