What does professional indemnity insurance cover?

Professional indemnity insurance can cover compensation payments and legal fees if a business is sued by their client for a mistake they’ve made in their work. The compensation payment will usually take into account the financial loss that the client has suffered.

Professional indemnity insurance can cover a broad range of potential risks. What can seem like small errors can be hugely expensive, but professional indemnity insurance can help to safeguard your business.

Professional indemnity insurance can cover you for mistakes including professional negligence, unintentional breaches of confidentiality or copyright, and loss of documents or data.

For example, you’re passing on confidential client data but you accidentally copy the wrong person into the email. Or you’re an architect designing a house but you make a mistake in the plans and the house later collapses. In both cases, you could be sued by your client. The compensation payment will usually take into account the financial loss that the client has suffered due to your mistake.

Bear in mind, however, that professional indemnity insurance does not cover you for the cost of any reputational damage that the mistakes have caused.

Does professional indemnity insurance cover bodily injury?

Professional indemnity insurance can cover third party compensation for bodily injury, but only if the injury is caused by your negligence in performing your professional duties. Professional indemnity insurance covers financial loss, personal injury and property damage resulting from your negligent act, error or omission while you’re working for a client.

However, if someone slipped over in your office, for example, it would be public liability insurance that you’d need to cover a compensation claim for injury. And it’s employers’ liability insurance that you need to cover employee claims for workplace injury.

Does professional indemnity insurance cover consequential loss?

In the context of professional indemnity insurance, consequential loss is a financial loss suffered by your client that’s indirectly due to your mistake or professional negligence.

Consequential loss is sometimes covered under professional indemnity insurance, although you should check your policy documents to make sure. Even if your professional indemnity insurance does cover consequential loss, there will usually be some exclusions. For example, consequential loss from a computer virus will usually be excluded.

Does professional indemnity insurance cover contractors?

You need to tell your insurer that you have employees (even if they’re contractors) so that they’re noted on your insurance policy. Your professional indemnity insurance can cover mistakes made by your employees that result in a compensation claim from your client, and this can potentially include mistakes made by your contractors.

Remember that it’s employers’ liability insurance you need to cover compensation claims made by your employees for illness or injury caused by their work. This insurance is a legal requirement for most businesses with employees, and this includes some types of contractors.

Does professional indemnity insurance cover defamation?

Defamation is something spoken or written that harms someone’s reputation and is proved to be false. Professional indemnity insurance usually covers unintentional defamation, but check your policy documents to make sure.

Does professional indemnity insurance cover budget overruns?

If your client claims that you’ve failed in your professional duty and that this has led to budget overruns, a resulting compensation claim may be covered by your professional indemnity insurance.

This can be a complicated area, and cover varies from one insurer to another, so it’s best to check your policy documents or speak to your provider.

Does professional indemnity insurance cover breach of contract?

Professional indemnity insurance from Simply Business doesn’t cover you if you’re sued by a client for breach of contract. Contractual liability is excluded from the cover.

Does professional indemnity insurance have VAT?

There’s no VAT to pay on professional indemnity insurance, but there is insurance premium tax (IPT) instead, which will be added to the cost of your policy.

Professional indemnity insurance is subject to the standard rate of IPT, which is currently 10 per cent. When you use Simply Business to compare quotes, the prices you see will include IPT.

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