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Professional indemnity insurance for lawyers
Professional indemnity insurance is a legal requirement for layers in Australian. Don't leave yourself exposed to serious financial losses.
Key takeaways
- Professional indemnity insurance is a legal requirement to practice
- Professional indemnity insurance policies vary with insurers. Some include additional cover for inquiries, investigations, court appearances and even public relations expenses.
Why do lawyers need Professional Indemnity Insurance?
In Australia, lawyers are required to have professional indemnity insurance. Because they are exposed to a range of risks, they must have professional indemnity insurance in order to practise. Key exposures for lawyers include:
- Providing erroneous or incorrect advice
- Fraud and dishonesty
- Conflict of interest
- Liabilities arising from the sale and purchase of businesses
- Inadequate documentation
- Poor communication with clients
- Liabilities arising from property-related transactions
- Liabilities arising from mortgage and commercial borrowing activities
- Intellectual property infringement
- Liabilities arising out of taxation advice.
While protecting lawyers, professional indemnity insurance also protects the general public. It ensures that they do not suffer losses, which might otherwise go uncompensated and as such, PI Insurance plays an important role in maintaining public confidence in the integrity of lawyers and the legal system.
- Providing wrong advice or information
- Breach of contract
- Breach of confidentiality
- Conflict of interest
- Loss of documents
- Failing to follow client instructions
- Libel and defamation
- Infringement of intellectual property
- Breach of consumer protection and fair trading laws
- Misleading and deceptive conduct
- Employee dishonesty.
Finder survey: How often do Australians from different states compare or switch their professional indemnity insurance?
| Response | WA | VIC | SA | QLD | NSW |
|---|---|---|---|---|---|
| once every 3+ yrs | 2.48% | 1.98% | 0.46% | 1.83% | |
| once a year | 1.65% | 0.66% | 2.15% | 1.38% | 1.22% |
| I never compare or switch | 0.83% | 3.63% | 1.38% | 0.61% | |
| more than once a year | 0.83% | 0.66% | |||
| every 2 yrs | 0.33% | 1.08% | 1.38% | 1.53% |
Source: Finder survey by Pure Profile of 1112 Australians, December 2023
Data for ACT, NT, TAS not shown due to insufficient sample size. Some other states may also be excluded for this reason.
Data for ACT, NT, TAS not shown due to insufficient sample size. Some other states may also be excluded for this reason.
Tips on how to compare Professional Indemnity Insurance for lawyers
Insurance offerings vary widely and you will need to compare policies closely to determine which professional indemnity insurance is right for you. When comparing policies, you should keep the following things in mind:
- The amount of cover provided. Whether it is sufficient to cover the highest potential financial loss that someone could claim against you and the total number of claims that could be brought against you in a year.
- The level of excess you would be required to pay. Particularly whether this is including or excluding costs, as if it includes legal fees, this would reduce the amount remaining to pay damages.
- The number of reinstatements of the sum insured. This is important, as you may have multiple claims in the same year.
- The territorial limitations of the policy. This is particularly important if a law firm has international clients.
- The exclusions. These are the main difference between professional indemnity insurance policies and should be studied carefully.
- The relevance of the policy to your particular profession and circumstances. It needs to cover all the possible exposures you might face in your line of work.
- The credentials of the insurer. Whether they have a good industry rating, which is an indication of their ability to pay, and whether you will receive adequate service, such as having your claims managed by a dedicated team.
- The extent of cover. Whether the policy also covers those acting on your behalf, such as past, current and future principals, employees, agents and contractors.
- The availability of run-off cover. This protects you against claims that might arise from work you performed in the past in a previous business.
While a certain level of professional indemnity cover is required for all lawyers, you may also need additional cover to protect against risks particular to your business. So when you find a policy that is close to your requirements, you may need to fine-tune it further in consultation with the insurer to make sure it is a perfect fit for your needs. This is where top-up insurance may be required.
What is top-up Professional Indemnity Insurance?
Top-up or excess layer insurance is cover that is in excess of the primary layer of insurance that lawyers are required to have. The limit of cover can be extended above $2 million to as much as $20 million and it is usually taken out when a law firm does a risk assessment and finds that its current level of cover is insufficient.
A lawyer may also consider top-up insurance when taking on a new client. The level of risk the work involves and the cost of insuring against it will influence how much the lawyer charges the client and even whether to take on the work or not.
This is because top-up insurance is not just something you can turn on or off as circumstances dictate. Cover needs to be maintained for up to six years to protect yourself against the possibility that a claim is brought against you at a later date.
Public liability cover for lawyers?
As a lawyer, you are probably already aware of the need for public liability insurance. Any business that has dealings with clients and the general public needs such cover to protect itself from claims of personal injury or property damage.
When clients visit your premises or when you visit them at their place of business, an accident is always possible and public liability claims can climb into the millions of dollars, so adequate insurance cover is vital.
Public liability insurance protects you and your employees from claims made for pain and suffering, past and future financial loss and loss of enjoyment of life, which are all components of public liability compensation. Circumstances not covered by this insurance mainly include any injury or property damage that results from a deliberate or malicious act on your part.
Public liability insurance is usually offered as an adjunct to professional indemnity insurance. It is not expensive and should form part of every lawyer’s insurance portfolio as a matter of course.
Talk to a broker about professional indemnity insurance for lawyers
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Hello, what is the general or lowest cost insurance policy for a law firm?
Hi Robert,
Thanks for your inquiry. Please note that we are not affiliated with any company we feature on our site and so we can only offer you general advice.
Unfortunately, we cannot say what is the lowest or recommend a specific insurance. Please fill out the form on this page to consult an Adviser and get further assistance about Life Insurance or Income Protection Quotes.
Best regards,
Rench