What is Professional Indemnity Insurance?

Professional Indemnity Insurance is similar to public liability insurance, but covers liability arising from losses due to advice given or design work.

Professional trades such as doctors, design consultants, and legal or financial services, advise people on all sorts of aspects of life and business, but the wrong advice can sometimes cause losses which are not necessarily physical.

These can range from loss of reputation or financial losses, to the failure of a critically designed component to perform properly, such as an alarm or safety system.

EXAMPLE – A customer uses a particular surveyor to buy a property.

The surveyor doesn’t do all the relevant searches and checks properly and it later turns out that the property has a fault that should have been notified to the customer before purchase.

The property is now much less desirable and worth a lot less than was paid for it as a direct result.

The surveyor is sued for the financial loss suffered, and his PI cover pays for it.

EXAMPLE – An architect makes an error in their calculations when they draw up some building plans.

The building is built according to these plans, but then falls down some time later on due to that error.

The architect’s professional indemnity policy will protect them against any comeback.

EXAMPLE – A doctor sees a patient with a particular health problem.

The doctor misdiagnoses the patient and sends them home again.

The problem develops into something much more serious, irreparably damaging the patient’s health, which wouldn’t have happened if they had received the correct treatment earlier.

They claim for injury under the doctor’s professional indemnity policy.

EXAMPLE – An alarm firm designs and fits an alarm at a premises that is then burgled, because the alarm fails to go off.

The alarm fails due to a design error. The customer then sues for the loss of their property (NB: Efficacy cover is related to, but different to this).

NOTE: Public Liability and Professional Indemnity insurance are often confused with each other.

In the case of alarm fitters and other companies, liability policies frequently exclude any cover relating to the failure of a component to work (efficacy) or errors in design work or advice (professional indemnity), which a client may often expect to be included.

Confusion often arises about what the difference is between professional indemnity and public liability policies, usually in connection with the word “indemnity”.

The word indemnity simply means “compensation for loss or damage”. A Public Liability policy will provide compensation for damage to property or people (injury), so it has an ‘indemnity’ limit.

Again there is further confusion between professional indemnity insurance and efficacy.

An alarm or electrical company may design systems in which case professional indemnity cover is needed and they may also install, service and maintain systems too, where they will also need efficacy cover.