In this post, we’ll explore that professional negligence is, when it can happen and whether professional indemnity insurance can help cover you and your business against claims.
What is Professional Negligence?
Professional negligence essentially means that an individual has failed to carry out their responsibilities to the required professional standard. It can also mean that a professional has breached their duty of care.
In either case, as a result of this poor conduct, a client, customer, or other third party individual may experience a financial loss, or damage to their property, or they may sustain a personal injury.
In such a scenario, the injured party may choose to make a claim of professional negligence. For this claim to be successful, there must be clear evidence that the service they received did not meet the required or expected standards of the profession.
Examples of Professional Negligence
Here are some examples of situations that may result in a professional negligence claim:
- An accountant makes an error in a tax calculation, resulting in a penalty for a client.
- A financial advisor offers bad investment advice, and their client makes a loss.
- A solicitor offers poor legal advice, or they are found to have a conflict of interest.
- A personal trainer fails to enquire about a client’s prior injuries, resulting in a serious injury during a session.
What is Indemnity Insurance?
Professional indemnity insurance can cover your business for a range of professional mistakes. This can include allegations of professional negligence, and allegations that you have breached your duty of care.
In the event of a professional negligence claim, your professional indemnity insurance can cover any legal fees that may arise, along with any compensation the injured party may be due.
Common Exclusions to Indemnity Insurance Policies
A professional indemnity insurance policy will usually outline a number of exclusions where the cover will not apply. These may include:
- Intentional acts – The policy will cover you for claims of negligence, but not for claims arising from criminal acts, or intentional
- Known circumstances – If the policyholder was aware of circumstances that could result in a claim, then they would have to disclose this situation when taking out the policy. If they do not disclose these known circumstances, then any subsequent claims may not be covered.
- Contractual liabilities – If a liability would not exist without a contract, then an indemnity insurance policy may not cover any claims involving breach of this contract. For example, it would not cover a penalty clause for the late delivery of a project, if it is found that the policyholder agreed to this clause in their contract.
The professional insurance policy may also exclude certain types of damages on the assumption that they would be covered by other liability policies. For example, claims for physical injury or property damage may be covered by a general liability policy, while costs arising from data loss may be covered by cyber liability insurance.
Protecting You And Your Business Against Professional Negligence Claims
As we have seen, professional indemnity insurance can protect your business against professional negligence claims. However, it is important to ensure you have the right level of indemnity cover for your business.
It is also important that you get the right type of indemnity policy for your business.
Types of Professional Indemnity Insurance
Indemnity insurance policies can either provide cover “in the aggregate” or for “any one claim”.
If your policy covers you in the aggregate, then the cover limit will apply to all claims made against you in the policy period.
If the policy covers you for any one claim, you will have the same policy cover limit for an unlimited number of claims in the policy period.
This distinction is important, as a single professional negligence claim could max out your cover limit. If your policy only covers you in the aggregate, then your insurance would not cover you for any subsequent claims.
Read our full guide to choosing the right level of indemnity insurance for your business.
We Can Help You Protect Your Business Against Professional Negligence Claims
James Hallam is an independent Lloyd’s broker with a dedicated team of experienced insurance professionals who care about protecting your business.
We will take the time to get to know you and your business, so that we can advise you on your specific business insurance and regulatory requirements. We can then help you get the right level of professional indemnity insurance for your business.
Learn more about our professional risks insurance services.