Consultancy businesses have the task of providing important advice and suggestions based on which clients take their decisions. This advice can help clients achieve their desired goals which would then lead to the enhancement of the reputation of the respective consultancy business. However, if a client faces severe financial losses after having worked upon the advice of the consultancy business, it can put the consultancy business in a difficult situation. The consultancy business can be sued by the client and the costs incurred upon the consultancy business can relate to both the legal costs and the compensatory costs that must be paid to the client.
To protect against such eventualities, professional indemnity insurance can be very useful for business. Professional indemnity insurance is also referred to as Errors and Omissions Insurance and Professional Liability Insurance. This insurance policy helps to pay for all the costs that a business has to pay if a client has to suffer a loss by taking their advice.
Businesses that should purchase Professional Indemnity Insurance
It is advisable that businesses that provide the following kinds of services should purchase professional indemnity insurance:
- Businesses that deal with confidential and sensitive data- Many businesses need to create and manage important databases that facilitate in providing their services. The nature of this data is sensitive and confidential most of the times. This data can get leaked and be put out in the public domain due to several reasons such as a cyber attack, hacking, malfunctioning of the concerned software, etc. If such a thing happens, the business can be sued by the client for breach of trust and failure to respect the confidentiality of the clients. These businesses, therefore, need to buy this insurance policy.
- Businesses that can face copyright and plagiarism related issues- Consultancy businesses often have to conduct research to generate information based on which they can provide their consultancy services to their clients. During this research, if they do not acknowledge their sources of information, they could be sued for plagiarism or violation of intellectual property rights. In certain circumstances, consultancy businesses can also be sued by their rivals on charges of libel or slander. Hence, consultancy businesses should purchase professional indemnity policy.
- As mentioned above, consultancy businesses can also be sued by their clients if they face losses after acting upon their advice. Hence, this is another reason why it should purchase the professional indemnity policy.
What does the Professional Indemnity Insurance cover?
The advantage of having professional indemnity insurance is that it foresees several problems that a business might face and hence it has provisions for taking care of those problems. Some of the things that this insurance policy covers is provided below:
- Covers legal costs and provides financial protection- If a business is sued by the client, then this insurance policy will help cover legal costs including the expenses of an out of court settlement. If the client faces financial losses due to the business then this insurance policy will also help to reimburse the financial costs to the client on behalf of the business. The only condition for this is that the financial loss should not be due to willful negligence on the part of the business.
- The policy adheres to retroactive claims also- One of the best features of this insurance policy is that it caters to the retroactive claims of the insurance buying business. For instance, a client of a business suffers losses due to the business, and at that point, the business was not covered by the professional indemnity insurance. Even then, the business can make insurance claims later on for that uncovered period also provided the claim is in accordance with the terms and conditions of the insurance policy.
- Correct estimation of the loss- Professional Indemnity Insurance makes an accurate assessment of the loss suffered by the client and then reimburses the costs accordingly. In the absence of this insurance policy, the business could be subjected to arbitrary compensations and the amount that needed to be paid could be so huge that it would lead to the bankruptcy of the business.
- Safeguarding the reputation of the business- It is quite obvious that any kind of error made by a business which leads to lawsuits is detrimental to the reputation of the business involved. In high profile cases involving big businesses and famous clients, it can also attract negative publicity through the media. Damage in the reputation would also mean that the prospects of the business would take a dip because the number of people wanting to do business with them would diminish. In such a situation, the professional indemnity insurance helps in bringing about some sort of damage control and prevents the situation from going out of hand. This mostly happens through out of court settlements after which both the parties are usually satisfied and the business is protected from being subjected to negative publicity.
- Overseas protection- The ambit of Professional Indemnity Insurance is not limited to the borders of the country within which the business is located. If a business carries out transactions with foreign clients and is sued by them, then the insurance policy can be applied overseas as well. However, in this case, the insurance policy will have to be purchased by the representative of that business in the overseas. Also, the overseas cover will have to be purchased separately as an extension of this insurance policy.
Circumstances under which Professional Indemnity Insurance is not applicable
There are certain situations during which businesses cannot make claims under the ambit of professional indemnity insurance. Some of those circumstances are the following:
- If an employee provides the services while being under the influence of alcohol and drugs.
- If there is willful negligence, forgery and fraud on the part of the business that has led to losses for the client.
- Deliberate disregard of laid down provisions by the business while delivering their services.
- Problems faced by the business due to war, or natural disasters.
If the nature of your business involves risks that could be mitigated with the help of professional liability insurance, get in touch with PlanCover to know more about this insurance. PlanCover can help align your business insurance policies to your business risks.