What is the benefit of getting professional indemnity cover if working as a lawyer?
As a lawyer, you provide advice and services to your clients on a regular basis, which is why you need to have professional indemnity insurance. Professional indemnity insurance protects professionals from claims brought against them alleging negligence or errors and omissions that cause a loss to a claimant.
Professional indemnity insurance covers a wide range of professions, as the courts now recognise many other types of professionals apart from lawyers, doctors and accountants. It covers the insured’s legal costs in defending the claim and any damages that might be awarded to the claimant. Most policies cover liabilities such as:
- Erroneous advice or information
- Breach of contract
- Breach of confidentiality
- Conflict of interest
- Loss of documents
- Failing to follow instructions
- Libel and defamation
- Infringement of intellectual property
- Breach of consumer protection and fair trading laws
- Misleading and deceptive conduct
- Employee dishonesty.
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?
- Tips on how to compare Professional Indemnity Insurance for lawyers
- What is top-up Professional Indemnity Insurance?
- Public liability cover for lawyers?
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.
Lawyers are often entrusted with holding significant sums of money on behalf of their clients. They also regularly provide legal advice regarding projects or transactions with exceptionally high values and it is for this reason that they, more than many other professional groups, need the protection of professional indemnity insurance.
And as well as 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.Back to top
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.Back to top
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.
Unlike professional indemnity, income protection cover is not compulsory for lawyers. This doesn't make it unimportant. Income protection can provide a form of income replacement while you recover from a serious injury on accident (and even if it occurs out of the workforce). Some policies will even cover high incomes i.e. up to $10,000 per month.Back to top
FAQs about Professional Indemnity Insurance for Lawyers
Q. As a lawyer, why do I need professional indemnity insurance?
- A. Because it is required by law in Australia and because lawyers are exposed to a high level of risk.
Q. What protection will it provide me?
- A. It will safeguard your personal and business assets in the event of a claim, allowing you to carry on your business.
Q. What does it actually cover?
- A. PI Insurance usually covers the costs associated with your legal defence and any resulting damages awarded to the claimant, up to the coverage limits of your policy.
Q. Explain the difference between a ‘claims made and notified’ policy and an ‘occurrence’ policy?
- A. A claims made and notified policy requires all claims to be made within the insurance period, while an occurrence policy allows a claim to be made any time after that, as long as the event happened during the insurance period.
Q. What is run-off cover?
- A. It covers you for mistakes you made while running your business that result in claims at a later date, after you leave the business.
Q. How is a professional indemnity insurance premium calculated?
- A. The premium you pay will depend on factors such as the kind of industry you are in, the services you provide, the limit of liability you choose, the amount of excess you opt for, your annual income and your claims history.
Q. What is the limit of liability?
- A. This is the aggregate limit for all claims made against you during the insurance period.
Apply for Professional Indemnity Insurance for Lawyers
While many new professions see the need for professional indemnity insurance, this cover has traditionally been a requirement for lawyers, because of the level of exposure they face in the course of doing business. In order to be fully protected however, they must know what level of cover to have and when top-up insurance is needed and this requires regular assessment of the risks involved in everything they do.Back to top