Professional Indemnity

Professional Indemnity Insurance - Why is it important?

Anyone who provides another person advice and/or services of a skilful character according to an established discipline could be regarded as a ‘professional’.

The law requires a professional to exercise their skill at an appropriate level expected of that profession. But professionals are only human and mistakes do happen. Any financial loss arising from a mistake, error or omission made by that professional may result in an award in favour of a third party. A professional may also be held to be liable for a mistake even though there was no negligence (i.e. breach of the Competition and Consumer Act).

Generally a professional who is employed is covered by their employer's Professional Indemnity cover, however appropriate and adequate PI insurance is essential for those undertaking any consulting or contracting work for which they are individually liable.

A Professional Indemnity policy is designed to protect the assets of a professional against damages awarded against them by a court, or resulting from an approved negotiated settlement, in relation to an act, error or omission committed by the professional during the conduct of their professional business activities. Importantly it also covers the costs and expenses of defending claims.

In today’s litigious society, no professional should ignore the possibility that a claim may be brought against them by a disgruntled client during the course of their career. A Professional Indemnity policy offers peace of mind, allowing the professional to carry on with their normal business activities.

Why do you need PI insurance?

  • You may feel that because your work is supervised by others, you do not need PI Insurance, but please consider this: Defending a claim of "negligence" usually involves seeking specialist legal advice and costs can very quickly mount up. You could expect to pay, for your own legal costs alone, $15,000 per day should the claim end up in Court. On this basis, the cost of defending a claim can very easily become a financial nightmare for the uninsured professional person.
  • Contract Engineers have been held to be negligent even though their work was supervised by the principal by whom they were "employed". In some of those instances the principals own PI Insurance did not protect the Contract Engineers.
  • Many Government bodies, local authorities and private consulting firms now insist that the professional contractors and consultants with whom they deal carry PI Insurance.
  • Everything a professional person does and says in the course of their business could result in a professional liability claim. In the present climate, spurious claims of negligent advice are being made with the aim of delaying the payment of professional fees. You might know that the claim is spurious, but you still may need to defend it. Remember, Civil Courts operate on the balance of probability principle, rather than the level of proof required in Criminal Courts.

Claims Examples:

Engineers
Engineer joined in contaminated Landfill claim. Insurer defended Engineer who was not found to be at fault , however legal defence costs were $1,000,000 alone without any contribution to settlement. Defence costs were extensive and not recoverable.

Design fault in a concrete slab caused the concrete to sag. Claim for rectification by the principal contractor was paid for $55,000 plus defence costs.

Financial Planners
Incorrect advice lead to Excess contribution to Super above cap creating tax liability of $80,000. ATO unable to amend notice.

Food Testing Laboratories
Incorrect reporting of a product as negative for Salmonella, then later determined as positive, product recalled, loss of business to Third Party. Incorrect advice by Food Testing Laboratory relied on by Chicken wholesaler.

Frequently Asked Questions on PI insurance

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