Professional indemnity insurance explained
Professional indemnity insurance explained - When looking for professional indemnity insurance cover it is necessary to choose the limit of indemnity that you consider will be necessary to cover the risks faced by your business. It may also be the case that you are obliged to buy a certain level of professional indemnity insurance cover as instructed by your relevant professional body, or to satisfy the criteria set out by the Principal Contractor under a contract before you can deal with them.
The Limit of Indemnity is the maximum amount of money that a professional indemnity policy will pay out.
Professional indemnity insurance can be arranged either on an aggregate basis or an any one claim basis. It is important that you understand the difference between the 2 types of Pi insurance cover as this could have a severe impact in the case of a large claim or if you were to incur multiple claims within any one policy period.
Aggregate basis -with this type of cover all claims are paid out of a specified Limit of Indemnity and this reduces the amount available for subsequent claims
Any one claim basis. Every claim that you make during the year is entitled to the Full Limit of Indemnity. However, all claims arising from the same occurrence would be regarded by insurers as one claim.
This can best be explained by way of a simple example:
Jack is a business consultant who has a professional indemnity insurance policy with a limit of indemnity of £ 50,000. During the policy period he has two allegations of professional negligence made against him and after investigation these claims are eventually settled £ 35,000 for £ 45,000 respectively.
If the policy was arranged on a aggregate basis then there is only £ 50,000 ‘In the Pot’ to pay for the claims and so the first claim would be settled in full but there would be a shortfall of £ 30,000 on the second claim that would need to be met by Jack out of his own pocket.
If the policy was arranged on an any one claim basis then there would be a limit of indemnity of £ 50,000 available for each claim and so both claims would be settled in full by the relevant insurers.
Costs and Expenses in Addition
This simply means that any costs and expenses incurred in investigating or representing you in defending the claim would be paid in addition to the amount of damages awarded to the third party, and further that the costs and expenses would not count towards the limit of indemnity.
- A 'Professional' is generally regarded as any person who offers 'specialist' advice or service.
- You owe legal duty of care to your clients.
- Legal costs in defending claims can be very high.