Compare professional indemnity insurance from Australian insurance brands and protect your business from legal costs and claims
Does your business rely on a providing a professional service? If so, you could be at risk of making mistakes in judgement and human error. This could leave you liable if something goes wrong and is where professional indemnity comes in.
What is professional indemnity?
Professional indemnity is defined as cover for any sort of professional service. For instance, businesses who rely on humans to provide advice can sometimes make mistakes and give wrong advice or even be negligent. Professional indemnity covers these risks.
- Does my business actually need professional indemnity insurance?
- Services that generally require professional indemnity insurance
Any worker that provides another person advice and/or a service of skilful nature that has required previous training for an established discipline is recognised as a professional. There is legislation in place in Australia to regulate the provision of services by professionals. Despite this, mistakes can and do happen in the workplace and will often lead to the professional’s client seeking compensation for damages. A professional can still be liable for losses even if the mistake was not a result of their own negligence. Professional indemnity insurance ensures your business can continue to operate despite having to cover legal costs. An example include:
- A medical professional providing incorrect advice and then having to cover the clients subsequent medical expenses
- A business to business consultancy giving advice that leads to the client going bankrupt
- An architect providing an incorrect design that leads to a clients building collapsing
Do you own your own business or provide a service?Most Australian workers are covered under their employer’s liability cover, however any worker carrying out any consulting or contracting work must ensure that they have adequate and appropriate professional indemnity insurance in place. All professionals should take the time to review the current cover they have in place and assess whether it is worth them taking out additional cover to ensure they are protected from claims against errors or omissions they have made in the provision of their professional activities.
As mentioned previously, anyone that provides advice or a service to another in an established discipline is a potential candidate for professional indemnity insurance. Some typical professions that will usually require professional indemnity insurance include:
Many professions work closely with Australian governing bodies to determine an appropriate level of professional indemnity cover that is required for their profession. Regulations around what types of insurance are mandatory for different industries can vary from state to state. It might be best to consult with your industry body to get a clear understanding of the specific types of cover you require.
What about these types of business activities?
Work that is supervised
Typical civil liabilities covered under a policy include:
- Breach of duty. Indemnifies the insured for claims arising out of breach of duties including confidentiality, privacy or fiduciary duty
- Consumer protection liability. Claims for compensation resulting from violation of statutory duty
- Contractual liability. Claims breach of contractual agreement that can be enforced in court
- Breach of Competition and Consumer Act and Fair Trading Acts. Indemnifies policyholder for claims arising for breach of Competition and Consumer Act and Fair Trading Acts (Australia and New Zealand)
- Intellectual property. Claims made for the infringement of the use of intellectual property. Most policies will require for the act to be unintentional and for the purpose of the provision of the service
- Unintentional defamation. Unintentional publication of words believed to be defamatory of the client if the insured made the comments innocently
- Contractors or consultants. Liability arising from services provided by contractors or consultants. Indemnity will only provide cover for the policyholder and will not extend to the contractors and/or consultants that have provided the service
- Libel or slander: Liability arising from libel or slander by the insured to the client provided that it was committed during the provision of their professional service and that it was unintentional
- Loss of documents. Loss or damage to the clients documents during the provision of the insured’s service
- Misleading and deceptive conduct. Claims arising where the policyholder has engaged in conduct that is misleading or deceptive in the provision of their service as outlined under the ASIC Act 2001
- Compensation for court appearance. In the event that the policyholder’s legal advisers require the principal or employee of the policyholder’s business to appear in court, the policyholder will be provided with compensation equal to their daily salary to a maximum amount
- Claims investigations costs. Compensation for costs incurred to investigate claims paid in addition to the maximum limit provided under the policy for Australian and New Zealand jurisdictions
- Dishonesty of employees. Policyholder will be compensated for liability in respect of claims made that were the result of dishonest, fraudulent, criminal or malicious acts or omission by an employee of the insured during the provision of their service
- Inquiry costs. Compensation for costs arising out of inquiries into the insured’s liability
- Joint venture liability. Compensation arising from the insured's participation in any joint-venture related to their professional service
- Legal consultation costs. Compensation for costs incurred from legal consultation to the policyholder in the event of a claim
- Public relations expenses. Indemnifies the policyholder for adverse public relations expenses that arise during the policy period
- Spouse liability. In the event that a claim is made against the policyholders spouse, the claim will be treated as the liability of the insured’s
- Extension of claim period. In the event that a claim is made against the insured up to a specified number of days following the expiry of the policy, the insured will still remain covered under the policy
The conditions of the cover features listed above will each have their own set of conditions for compensation to be paid which may vary greatly between policies. It is crucial that anyone looking to take out cover is absolutely clear on the requirements for a claim to be paid and the maximum compensation that they stand to receive under claim.
Some typical exclusions listed on professional indemnity policies include:
- Claims arising following cancellation of policy: It is not unusual for many claims to be made against businesses and/or professionals a significant period of time following the provision of the service and even after they have ceased business. As many professional indemnity policies expire when they are cancelled, the policy owner may not be covered for claims made against them even if they have already retired. This can be avoided by taking out a policy with a “run off” extension discuss in the section below
- Claims arising following switching insurance brands: If the policyholder is covered by a policy provided by their employer and they have changed employers and switched insurance brands, it is unlikely that they will be covered for claims made for the business they provided with their previous employer. It is also unlikely that any compensation will be provided as the previous cover is likely to have expired. In this event it is worth the worker checking with their new insurer what provisions they have for previous claims
- Known circumstances: Generally, the insurer will not receive compensation for events that they were aware of prior to the commencement of the policy period
- Professional fees: Compensation will not be paid for any claim arising from the insured for claims by clients for fees or charges for their professional service. No refund of fees or charges from the insured will be paid by the insurer
- Asbestos: Claims or legal costs that arise in respect of asbestos
- Radioactivity and pollution: Claims that are attributable to or are the consequence of radioactivity or pollution
- Dishonest, fraudulent or criminal acts: Claims arising where the policyholder has intentionally engaged in dishonest, fraudulent or criminal acts
- Fines and penalties: Claims arising for compensation to cover fines or penalties suffered by the insured
- Directors or officers: Liability arising from claims where the insured was acting in the capacity of the director or officer of a company or organisation
- Insolvency: Claims made against the insured where all or part of the claim is attributed to the insolvency of the insured or their suppliers/contractors
- Licensing enquiries: Claims made against the insured for failing to be properly licensed, registered or accredited to provide their professional service
- Manufacturing, efficacy, faulty workmanship: Claims for loss arising out of poor manufacturing or faulty workmanship by the insured
- Owners and occupiers liability: Claims arising from occupation, leasing or ownership of any rental or other property
- Retroactive date: Claims for things done or that are thought are to have taken place prior to the retroactive date
- Superannuation trustee: Any claim arising from connection or conduct between the insured and a superannuation trustee
- War or act of terrorism: Any claim arising from war or terrorism regardless of any cause or event.
These are very broad definitions of some typical exclusions that may be placed on certain policies. It is essential that anyone looking to take out cover is aware of all policy exclusions and the conditions for claim payment prior to application
In addition to the default cover provided under professional indemnity insurance policies, applicants also have the option to increase their level of cover with a number of policy extensions.
- Loss must be discovered by the insured during the period of insurance
- Insurer must be notified of loss within a specified period of time. This will be outlined in the policy disclosure statement
- Cover is not provided for losses that have occurred following the discovery by the insured of such conduct by the principal, director or employee or after the insured had reasonable grounds for suspicion of the act occurring
- Indirect or consequential loss is generally not covered. This may include liability to third parties, trading losses, investigation costs or damages of any kind
- Insured must be able to substantiate to the insurer any loss covered by this policy extension
- Each policy will have a sub-limit applied for liability payable to the insured in the event of a loss occurring
3 important conditions in professional indemnity policies to be aware of
- Unlimited Retroactive Date: The insurer will cover claims relating to acts, errors or omissions regardless of when they occurred.
- Specified Retroactive Date: Policy restricted to cover claims that arise from acts, errors or omissions that occur after the date outlined in your policy documents.
Some insurance brands limit the retroactive date to the time your business first took out professional indemnity cover but, ideally, you will typically hope for the retroactive date to not be any later than the date your business began offering services to customers. If you change to a different professional indemnity insurer, in most cases the retroactive date in place will be carried forward by the new insurer so that past work you have performed is still covered.
- Costs Inclusive: Includes defence costs in the maximum amount it will pay for a claim. So if your policy offers $3 million cover, costs inclusive, and if a claim is made against which requires you to pay a liability of $3 million to the claimant but also sees you incur legal defence costs of $300,000, your policy will only cover the $300,000 of legal costs plus $2.7 million of liability. That leaves you with $300,000 left to cover out of your own pocket.
- Costs Exclusive: Legal defence costs are covered in addition to the limit of indemnity, which therefore makes it a more desirable option for most businesses.
How much cover do I need?
Unfortunately there is no set answer for how much cover you should take out. Every business is different and there are different regulations in place for minimum cover required for certain professions. These requirements can also vary from state to state. Some other factors to consider that will impact what you pay for cover include:
- Clause of contract. Most contracts will specify a minimum amount of cover that the worker must have in place to carry out the project.
- Type of project and value. This is the correlation between the value and size of the project being undertaken and the workers exposure to claims for professional negligence
- Perceived exposures. Assessment of possible causes of loss, injury or damage that may lead to a claim being brought against you.
- Number of parties relying on advice. If the nature of the project means that advice will be passed onto more than one party, the worker may be liable for claims from other parties affected.
- Cost of defending a claim. Some policies will have an additional limit applied for the actual cost of defending a claim. Lengthy court cases can quickly run into the tens if not hundreds of thousands of dollars.
- Willingness to carry risk. This requires the worker to assess how much of the risk they are willing to carry themselves with a lower policy limit or by transferring the risk to other parties.
- Cover for previous claims. Professional Indemnity Insurance is of a "Claims Made Basis" . This means that cover can apply for claims made against the worker for previous activities. With this in mind it's important to consider the potential value of claims in the future following inflation.
Determining an appropriate level of cover is no easy task. It's worth taking the time to speak with a financial adviser to help you assess the risks you are exposed to and what protection packages may be suitable.
Everyone is regulated under common law to not cause damage to anyone or their property or to cause them any financial loss. This liability is known as ones general duty of care and is separate to the professional liability that professionals have in the provision of their business to ensure that their client does not suffer any injury, damages to property or financial loss.
|Professional Indemnity||Public liability Insurance|
Can I get covered for both under one policy?
- Yes you can.
One of the main reasons that people often get confused between these different types of cover is because many policies will provide cover for public, product and professional liability under the single policy.
How will I know if I have combined cover?
This is usually outlined in the product cover features and exclusions though it can be difficult for applicants to know exactly what events they will be covered for. Many professional indemnity insurance policies will have exclusions in place for injury or damages to property and vice versa. As an example, a professional indemnity insurance policy may have the cover extension that provides cover for claims arising out of “Manufacturing, Loss or Faulty Workmanship” though this may recognise personal injury or damage to property as a loss.
What are the risks of a combined policy?
The risk is that many policyholders may actually be significantly underinsured from particular losses by relying on one umbrella policy to provide adequate cover for public, product and professional liability. It is worth speaking to an insurance consultant to help them find and tailor a policy closer to their needs.
How much does professional indemnity insurance cost?
As with most types of protective insurance, the cost for cover to be taken out can vary dramatically depending on the insured’s cover needs. In the case of professional indemnity insurance, this will depend on whether the policy is for a sole trader or for a business looking to provide cover for a significant number of employees. While sole traders may be able to get adequate cover for just a few hundred dollars, the cost of insuring a multinational company could run into the hundreds of thousands of dollars. Key factors that impact what you pay include:
- Number of staff employed by company and annual turnover. Sole traders or companies with say 15 employees won't require the same level of cover as large-scale organisation.
- Types of clients that company/professional services. Professionals that work on large-scale,. multi-million dollar projects will require a higher level of cover than smaller firms.
- Industry. The nature of the service provided and the level of risk for claims being made will impact how much is paid for cover.
- Policy inclusions and exclusions. Obviously more comprehensive protection packages with increased levels of cover will cost more than more basic policies.
The cost of professional indemnity insurance is largely based on the percentage of your companies total legal spend and the likelihood of the company being taken to court. The insurer that you go with and the policy that you choose will also play a major role in the final cost of cover.
Quote example for professional indemnity cover
The example below is an online quotation obtained from insurer CGU. Please note this price is only to be used as a broad example of what may be paid for cover and does not take into consideration additional factors that may increase or decrease the monthly premium. The example assumes there has been no history of previous claims or any previous declines for cover.
|Business Details||Example 1||Example 2|
|Occupation||Accounting Services||Fitness Instructor|
|Gross professional fees earned in last 12 months||$300,000 - $400,000||N.A|
|Number of premises||1||1|
|Level of cover||Comprehensive||Comprehensive|
|Professional indemnity limit||$5 million||$5 million|
|Liability cover||$10 million||N.A|
|Monthly Premium (Indicative Price)*||$307.66*||$88.55*|
*prices in example quote taken from CGU on 11 June 2016 and subject to change.
With so many different cover options available on the Australian Professional Indemnity Insurance market, it is crucial that any sole trader or business looking to take out cover take the necessary steps to compare different options to ensure they are receiving adequate cover at the right price.
- Default cover features: It is critical that anyone looking to take out cover closely review the cover features listed in the product disclosure statement to know exactly what liability they will be covered for. Refer to this section for an overview of typical cover options
- Policy extensions: Most policies will offer a number of additional cover options to applicants to ensure there is an adequate level of cover in place. Such extensions may include run off cover and fidelity insurance
- Limit of liability: Each insurer will clearly state the maximum compensation that will be paid for each claim within the product disclosure statement
- Policy exclusions: Each insurer will have its own set of exclusions for when a policy will not be paid. It is critical that these are reviewed closely when comparing policies to avoid any surprises in the event that a claim is made further down the track. It is not enough to just skim over these…the conditions for payment must be closely reviewed and understood
- Entities covered under the policy: Each policy will list the parties that will be covered under the policy. It is critical that any business owners looking to take out cover for employees and other entities related to their business that they have a clear understanding of whom exactly is covered for the provision of professional services
- Professional services provided in the past: It is vital to have a clear understanding of how your insurer deals with claims for work that you carried out with a previous employer or while covered under a previous policy. Many policies will not recognise claims that have been made outside of their retroactive date
- Cooling off period: Each provider will offer a cooling off period whereby you will have the option to cancel your cover if you feel it does not meet your needs. This is generally about 21 days
- Claim conditions: Insurance brands will have conditions in place for the payment of claims for different liability faced by the insured. Some key aspects of the insurers claims conditions to review include;
- Alteration to risk
- Cancellation / Termination
- Changes to the policy
- Worldwide territorial / jurisdictional limits
Depending on your location and occupation, you might need to get professional indemnity cover before you can legally provide your services.
Other times, it might not be mandatory, but will be required in order to develop your career. For example, you are required to hold professional indemnity insurance in order to become a Certified Practising Accountant in Australia.
Meanwhile, other industries have professional indemnity insurance requirements all over Australia. For example, you cannot practice as a physiotherapist in Australia without professional indemnity insurance.
While care has been taken to ensure the accuracy of the following information, it is not comprehensive and may be subject to changing legislation. Business insurance brokers or industry representatives may be able to help you find information for your situation and profession.
Real estate and stocks
In New South Wales, you must hold professional indemnity insurance if you have a license issued under the Property, Stock and Business Agents Act 2002.
This includes professions such as real estate agents, stock and station agents, business agents, strata and community managing agents, and on-site residential property managers.
To meet the requirements, your mandatory professional indemnity insurance must have the following:
- Minimum amount of cover. A minimum of $1 million cover for any one claim and $3 million in aggregate for all claims made during a period of insurance.
- Liability cover. Cover for liability arising from negligence, unintentional misleading or deceptive conduct, breach of professional duty, defamation, interference with intellectual property rights, employee fraud or dishonesty.
- Cover for you and your employees. Cover for yourself and any applicable employees or agents
When am I exempt?
You are exempt from mandatory cover in the following situations:
- If you are a license holder who does not carry out professional activities under the license. For example, you may be currently unemployed, employed in a different industry or a trainer rather than a practising professional.
- For commercial property agency work in relation to any property exceeding $10 million in value
- For commercial property agency work carried out by a corporation on behalf of an affiliate that holds the required professional indemnity insurance.
Who else might require professional indemnity?
Other professions may also be required to hold professional indemnity insurance before commencing practice. For example, architects are required to hold an appropriate level of cover for the project they are undertaking and inform their clients of what level of cover they have.
Professional indemnity insurance may be required in certain areas, such as if you provide consultation or advice to clients on the following:
- Design work or architecture
- Financial planning
- Management of their businesses or interests
Professional indemnity insurance may also be required for a building industry consultant who wants to qualify for government contracts.
In Victoria, you may be required to hold mandatory professional indemnity insurance in the following situations:
- Your business operates in an area similar to the ones specified above.
- You are a healthcare practitioner.
- You are a lawyer or legal practitioner. There are a range of exemptions to this requirement, although you may be required to disclose your lack of insurance to prospective clients.
- You are an architect. You must provide evidence of your professional indemnity insurance annually. Cover must be automatically re-instating, must be at least $1 million and at least 20% of your cover must be for legal defence purposes.
Community organisations may be required to hold professional indemnity insurance. Some of these organisations may be eligible for cost-savings by accessing cover through a state program. Eligible organisations can include the following not-for-profit organizations:
- Health care centres, public hospitals, drug and alcohol facilities, hospice care centres, community health centres and others.
- Kindergartens, youth accommodation, family support, disability accommodation support, community housing, financial counselling and others. For-profit businesses that work in these fields may be covered for professional indemnity insurance through the same insurance programs.
Professional indemnity insurance, along with public and product liability insurance as well as directors’ and officers’ liability, is mandatory for some private businesses within these industries.
Professional indemnity insurance is mandatory when providing a range of services and in a range of different situations. These include the following:
- Construction work. Building indemnity insurance is mandatory for building contractors performing domestic construction work that costs more than $12,000 or requires council approval. This includes new buildings, renovations and extensions. Construction cannot legally commence on these projects until the contractors have the required building indemnity insurance.
- Healthcare services. Professionals providing healthcare services in SA may be required to hold at least $10 million of professional indemnity insurance and $10 million of public liability insurance in different situations, such as when they are external staff providing healthcare services in a hospital.
- Legal services. Legal practitioners in South Australia are generally required to either hold professional indemnity insurance or to seek a specific exemption from this requirement.
- Architectural services. Architects are required to hold at least $1 million of professional indemnity insurance.
Membership for some prominent industry organisations may require professional indemnity insurance, while other industries, such as health care, may also require it.
- Wider healthcare services. Public sector healthcare providers may be required to hold professional indemnity insurance, either through a state scheme or another insurer.
- Nurses, nurse practitioners and midwives. Registered nurses, nurse practitioners endorsed under national law and related education providers as well as employers of registered nurses and nurse practitioners are all required to hold professional indemnity insurance in addition to specific other forms of cover. It is illegal to practice nursing in the NT, including volunteer work or on behalf of any other organisation, without this type of insurance.
- Legal practitioners. Practicing certificates from the NT Law Society cannot be issued without proof of adequate professional indemnity insurance. You must get the insurance prior to commencing practice, and you cannot get it backdated.
Here's are some industries that require professional indemnity in the Australian Capital Territory:
- Architects are legally required to hold professional indemnity insurance before commencing practice in the ACT.
- Practising lawyers in the ACT are required to hold professional indemnity insurance when holding an ACT Law Society practising certificate.
- Government professions and organisations hold professional indemnity insurance through existing programs.
Mandatory indemnity insurance in Tasmania:
- Building and construction. Working in these areas may require professional indemnity insurance in line with state government legislation.
- Engineering and design. Engineering and design professionals are required to hold professional indemnity insurance.
- Medical services. The Health and Community Service Union in Tasmania requires members to be covered by the organisation’s insurance policy, which means members, such as ambulance drivers, nurses, physical therapists, paramedics and others are required to hold professional indemnity insurance and malpractice cover of up to $10 million per claim, including Good Samaritan Acts Endorsement cover.
In the event that a claim is made against the insured, it is their duty to inform the insurer as soon as possible. Notice is to be put in writing and sent to the insurer by courier, fax or certified mail. The insurer will recognise that notice has been received once their underwriting division has received the notice. Every letter, demand, writ, summons and legal process pertaining received by the insured related to the claim must also be forwarded across to the insurer. Most insurance brands will have claims form located on their website for the insured to complete. These will usually be comprised of the following sections:
- Details of the insured
- Policy details
- General information about the claimant or potential claimant
- Details of the insured’s retainer/contract
- Details of the claim or circumstance
- Details of the insured’s response
- List of relevant documents that have been attached to the claim form
- Insured’s declaration
Conditions to be aware of when making a claim
- Insurer is entitled to take over and conduct in the name of the insured to defend any claim made
- Insurer reserves the right to deny cover to the policyholder as it assesses a claim or conducts defence on behalf of the insured
- The insured or insurer will not contest or litigate the claim if the senior council is of the belief that attempts should be made to reach a settlement for the claim
Allocation: In the event that there is a claim made for losses that are both covered and not covered under the policy, the insured and the insurer will work together to agree upon a fair and proper allocation between covered loss and uncovered loss by taking into consideration the financial exposure to both covered and uncovered parties. Defence and settlement: The insured will not admit liability or settle a claim without first receiving the insurance brands consent. Other insurance: In the event that the insured may be covered under other forms of insurance, they must give complete details of this cover to the insurer. Most policies will not cover any claim or loss that may be covered under another policy.
Who is considered a professional?
Why is professional indemnity insurance necessary?
How do I get professional indemnity insurance?
What is the difference between a “claims made and notified policy” and an “occurrence policy”?
- Claims made and notified: Any fact, situation or occurrence that may lead to a claim being made must be notified to the insurer within the period of insurance. If the policy has retroactive cover in place, the event leading to the claim could have taken place prior or after the period of insurance. The insured must not have any prior knowledge of any known circumstances that may have resulted in a claim.
- Occurrence policy: Event leading to a claim must take place during the period of insurance, though the insurer can be notified of the event at any time following.
When should an insurer be notified in relation to a claim made?
What is loss of documents?
Do insurance brands charge excess in the event of a claim?
- Costs inclusive: Excess applied to legal costs and settlement.
- Costs exclusive: Excess applied to actual settlement of a claim. No excess is paid if matter is successfully defended.
Costs exclusive is more desirable to policyholders but is only offered by select insurance brands and at a higher premium.