Professional indemnity insurance is a form of insurance that protects a policyholder who, as part of their business, provide services or advice to their customers.
Why would a consultant need professional indemnity insurance?
If the main service of your profession is "consulting" for other people or businesses then a professional indemnity policy should be strongly considered. If the advice you provide doesn't live up to the expectations of your client then you may be liable for legal action. A professional indemnity policy can protect you against negligence by covering the following costs:
- Legal fees. This includes paying a lawyer and court fees.
- Compensation. If you are liable for negligence then you'll need to pay a sum to your client.
- Public relations. Even if you found negligent, there could be costs that go a long with repairing your name.
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What types of consultants can benefit from professional indemnity insurance?
Professional indemnity insurance is not compulsory for many professions, however, individuals in certain industries should definitely consider holding it. These include:
- Management consultants
- IT professionals
- Personal trainers and fitness coaches
- Public relations consultants
- Media advisers
- Financial advisers
- Advertising agents
As a general rule of thumb
Professional indemnity can help any profession is at risk of providing advice or a service that can cause significant harm to a client or customer.
What types of events could lead to claims against consultants?
Claims against a consultant may arise for a number of reasons and depends on the type of consulting work. Generally, because the roles of most consultants involve giving advice, the most important area in which a claim may arise is through a client relying on incorrect or negligent advice of a consultant, and experiencing a loss.
Bad advice can lead to a bad situation
Clients rely on the fact that the consultant is a professional and trust their advice Because of this, a client may feel motivated to make a claim if your advice leads them to losses. For example, a consultant who has been hired to provide financial advice to a company may have a claim served on them if their advice is incorrect and causes the company to suffer a financial loss.
Providing services as a consultant can also lead to negligence
Outside of an advice-giving context, claims arise in situations where the consultant is providing service. For example, a recruitment consultant hiring an ill-suited employee for a role in a company without conducting a background check could trigger a claim by the company.
A detailed list of events
There are a wide range of circumstances that could lead to a claim being made against you. They include but are not limited to:
- If you breach your client’s confidentiality
- If you misplace important documents that belong to a client
- If a client issues you with instructions and you fail to follow them
What are the crucial features of a policy?
The majority of policies will include coverage of costs associated with defending a negligence claim against a client. These costs will mainly be those needed to retain a lawyer, other legal costs associated with defending a claim and the amount needed to compensate a client if their claim is successful.
Aside from negligence
Professional indemnity insurance can also cover the costs associated with:
- Infringing intellectual property rights
- Losing or damaging documents
- Hiring public relation consultants to restore a professional’s reputation.
Other features to understand
- A limited amount of free legal consultation
- Coverage for employees, contractors and spouses of the policyholder.
- Limited cover before the start date of the insurance policy
- 'Run-off' cover that allows people to make claims after selling their business (for matters that occurred before the sale)
Can I get income protection for myself or for my employees?
- Their families are reliant on their income
- They are not able to sustain their living expenses in the even of an injury or illness
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Frequently asked questions
Q. What is a professional?
- A. A professional is anyone who uses advanced knowledge to advise a client or provide services to them. It is a broad definition that does not necessarily relate only to doctors, lawyers, and accountants. For example, different types of consultants, agents, and managers may fall under this definition.
Q. What is negligence?
- A. Negligence, in this context, involves a situation where the below circumstances are met:
- A professional, such as a consultant, owes a duty of care to a client;
- The consultant does not meet this standard of care i.e. they breach their duty to the client;
- The client suffers a loss that a consultant should have foreseen; and
- The above loss was caused by the consultant not fulfilling their duty to the client.
Q. What will professional indemnity insurance provide cover for?
- A. Depending upon the specific policy, this type of insurance chiefly covers the legal costs of a professional in a negligence case, and any amount they will have to pay as a result of the case.
Q. Why should a professional hold indemnity insurance?
- A. Professionals need to advise and service their clients to the degree expected of their profession. If the professional is unable to do this, through a mistake, incompetence, or otherwise, indemnity insurance will enable them to cover the costs in the event that they are sued.
Q. But I am very confident in my professional abilities! Why should I have indemnity insurance?
- A. In today’s legal climate, it is possible that vexatious litigants may sue you even if you have done nothing wrong. Just defending yourself, even if you are ‘in the right’, can cost you tens of thousands of dollars. Indemnity insurance can cover these costs for you and give you the peace of mind just in case you are unfortunate enough to have to defend yourself in a legal context.
Q. Can a new insurance policy be purchased to cover past actions that led to a dispute?
- A. This will depend upon the specific policy and provider. Retroactive cover may indemnify a professional for past actions prior to the period of insurance in some instances. However, this usually applies to wrongs that the policyholder has no prior knowledge of.
Find Professional Indemnity Insurance for a Consultant
Because consultants are often engaged to help make important decisions for companies, it is wise for them to hold a policy of professional indemnity insurance in case they cause a client to suffer a loss. There are many providers available and the correct policy to choose depends on the nature of the consultant’s work.Back to top