Professional Indemnity Insurance

What is Professional Indemnity Insurance?

Professional Indemnity Insurance is designed for professionals such as architects, doctors, engineers, chartered accountants, lawyers, and medical practitioners to shield their businesses from legal claims.

Regardless of the size of your business, there is a chance that you may face allegations of providing poor services, advice, or designs that result in financial losses for your clients.

In today's litigious world, a single legal liability can damage your standing in the market, and your competitors may take advantage of this. A Professional Indemnity Insurance policy covers all such expenses and protects your business.

How Professional Indemnity Insurance Works?

Professional liability insurance is based on the idea of safeguarding professionals and businesses against claims filed by their clients relating to the professional services or consultations offered.

Claims may arise due to negligence, errors, malpractice, etc. when providing professional advice or services to clients, leading to significant financial losses. However, professional indemnity insurance typically covers claims related to incidents that occurred during the policy period.

Professional indemnity coverage is mainly provided on a claims-made basis. It indemnifies the insured's professional liability for only the claims made during the policy period concerning covered malpractices, negligence, errors & omissions, violation of good faith, or misrepresentations committed within the same policy term.

Any claims filed for an incident that occurred before the activation of the policy coverage may not be covered by the insurance company.

However, some professional liability insurance plans may offer coverage to a retroactive date. In such cases, claims can be filed for incidents that occurred during the retroactive period once the professional indemnity coverage is activated. Therefore, it is advantageous to opt for professional liability insurance with a retroactive date as old as possible.

Who can Take the Professional Indemnity Policy?

Professional indemnity insurance can be availed by the following group of professionals:

• Doctors and medical practitioners such as physicians, surgeons, cardiologists, pathologists, etc.
• Engineers, architects, contractors and interior decorators
• Medical establishments such as hospitals and nursing homes
• Lawyers, advocates, solicitors and counsels
• Chartered accountants, management consultants and financial accountants

What is Doctors Professional Indemnity Insurance?

Professional Indemnity Insurance for Doctors  is specifically designed to protect doctors from liabilities that may arise due to errors or omissions in their services. It covers legal costs and damages incurred by third parties as a result of the doctor's services, but only for civil liability claims. It is intended for registered medical professionals, such as surgeons, physicians, and pathologists. However, it does not cover claims arising from criminal or illegal activities.

You may also read: Professional Indemnity Insurance for Chartered Accountants

Why Professional Indemnity Insurance?

Regardless of how many years of experience your firm may have, there is always the possibility you or one of your team members could make a mistake. You may need professional indemnity insurance if you:

• Handle data belonging to a client or business
• Are responsible for a client's intellectual property
• Advise or guide clients
• Provide professional services and could be challenged in your work

No matter how large or small a business, without professional indemnity insurance your financial position could be left vulnerable if a claim is brought against you. Hence, having an adequate insurance plan in place will give you peace of mind that your organization is covered.

Benefits and Features of Professional Liability Insurance Plans:

Here’s a rundown of the key benefits and salient features of Liability Insurance:

1. Group Policies:

   Various insurance providers offer group policies for professional indemnity coverage. Members of a single profession will get the coverage. These policies also offer a discount of premium depending on the number of group members added under the group plan.

2. Coverage:

   Professional Liability Insurance Policy covers all the legal liabilities arising out of negligence, omissions, or errors of any professional whilst rendering service that causes damage to the property of a third-party or injury to the third party itself.

3. Expenses Incurred for Defence:

   Public Liability Insurance also covers all the expenses incurred for defence. This means, all the charges and fees applicable to your defence in the court, are paid off out of your sum insured. However, this feature is limited to the boundaries of India only.

What does Professional Indemnity Insurance Cover?

Professional indemnity insurance covers a wide range of scenarios, including:

• Professional negligence
• Unintentional breach of copyright or confidentiality
• Loss of documents or data
• Claim investigation costs
• Defamation and libel
• Loss of goods or money

Professional Indemnity Insurance: Exclusion

The exclusion list of personal indemnity insurance cover includes:

• Intentional damage: To save the business one needs to maintain a good rapport with its clients. It’s possible that you may accidentally miss an important meeting or offer some wrong advice. But if the evidence says you knowingly set out to harm the client, the personal indemnity cover that you have wouldn’t accept the claim as intentional damages are excluded for obvious reasons.
• Illegal Acts: This plan doesn’t offer coverage for illegal acts and any lawsuit issued against you for the same. For example, you hack your rival’s software out of desperation, seeing its sky-high growth. Your plan would not provide protection against the lawsuit over cyber damage.
• General Liabilities: Regular accidents that are not part of your work or workplace are not covered by this plan. To cover these, there is ‘General Liability Insurance’.
• The act of Terrorism: Your business may be at stake due to regular terrorist attacks or the constant threat of terrorism in Kashmir. But you’ll have to look for some alternatives as a professional indemnity plan doesn’t include a terrorist attack.
• Contractual Liability: Liability that one might assume from the other through a contract is called Contractual Liability and this is excluded in Professional Indemnity Cover.
• Employment Dispute: Professional Liability Insurance coverage may include the errors or mistakes made by your employees but it doesn’t cover the dispute between you and your employees.

Factors to Consider While Purchasing Professional Indemnity Insurance

Here are several factors that you need to consider while purchasing the professional liability insurance:

Decide Right Sum Insured

The sum insured is a vital aspect of any insurance policy. It is determined by the nature and magnitude of risks associated with a business and not by the service or consultation fees charged. It is essential to choose an adequate sum insured to ensure sufficient coverage in the event of a claim.

Be Transparent While Sharing Important Information

Full disclosure of information is critical when obtaining an insurance policy. Omitting even the smallest details may result in the insurer rejecting a claim, rendering the insurance policy useless. It is essential to provide every bit of information, regardless of how insignificant it may seem.

Align Business Needs to Insurance Features

It is crucial to ensure that its features align with your business needs. If your business operates primarily with international clients, it is essential to avoid policies that only provide domestic coverage. Instead, opt for a policy that extends coverage beyond the country's borders.

What is the Retro - Active Date in a Professional Indemnity Insurance?

Some insurance companies have a retro-active date. The retro-active date is a period or number of days before the actual or date of inception of the professional indemnity insurance policy. They might cover the claims made during the policy tenure but the event or incident that caused the significant financial loss happened before the period.

So, events that happened during the retro-active period could be claimed if the claim is made during the tenure of the insurance policy. Mistakes are inevitable and can happen anytime in any business.

Professional indemnity insurance will be there to protect by carrying the burden of the monetary compensation that is to be given to the clients by the organization. Such a policy is taken up by the following businesses and individuals.

• Consultants
• Brokers
• Agents
• Notaries public
• Brokers from real estate
• Architects
• Insurance agents
• Landscape architects
• Appraisers
• Management consultants
• Third-party business administrators
• IT - Information technology service providers
• Attorneys
• Quality control specialists
• Engineers

Tail Reporting Coverage

Tail reporting coverage, also known as extended reporting endorsements cover, is a type of insurance that covers the incidents that occurred within the tenure of the indemnity insurance but were not reported until the termination of the policy.

Extended coverage is offered by some insurance companies if the insurance policy remains non-renewed for that time. Of course, the extended coverage gives rise to the premium, which has to be paid if the tail reporting coverage needs to be used for claims.

How can You transfer Retro-active Date from Old Policy to a New One?

There is a coverage called “prior acts” or “nose’, which transfers the retro-active date from an old policy to a new professional indemnity insurance policy. This transfer eliminates the need of purchasing a tail cover. The ‘prior acts’ cover is comparatively less expensive than the tail cover.

Professional Indemnity Insurance - The Perfect Risk Management Tool

The professional indemnity insurance policy is one of the best risk management tools available for businesses, as there is no better way than having an insurance policy pay off your debts or the money you owe to your client. Negligence and mistakes not only cost you your clients but also cost you a fortune.

Professional indemnity insurance or a professional liability insurance policy helps manage your business and losses better without having to be sued or legally accused of major financial losses, which might lead to the fall of your entire business or your client’s entire business.

If you do not have professional indemnity insurance, you would either have to pay an amount equal to your client’s loss from your pockets, which might lead to the fall of the business or make the company bank corrupt or might have to face legal actions taken by your client because of the mistakes you made.

Professional Reputation

In case your client faces a major loss and you have professional indemnity insurance, you might be able to convince your client to settle down with the payment and not make it a legal issue.

It surely is an easy way out and has positive long-term impacts. It surely protects your professional reputation as an organization and leaves the window of opportunity for other clients to approach you.

When will the Policy Cover?

This insurance policy is based on the claims that are made. It means that the professional indemnity insurance policy will only cover the claims that are made during the tenure of the policy. So, make sure you get your renewals done on time.

Also, any financial loss due to false advice, negligence, or faulty analyses will only be covered if those mistakes were made during the tenure of the insurance policy. Claims made before or after the period of the policy will not be covered.

How Much does Professional Liability Insurance Cost?

The cost of professional liability insurance usually varies from one insurance company to another. This is because businesses in a variety of sectors and industries can avail of personal indemnity cover making it difficult to have a fixed insurance rate. The policy is not universal for all kinds of businesses availing the coverage and hence there cannot be parity in their cost.

For example, the professional liability of an accountant is not the same as that of a medical surgeon. Hence, the cost of professional liability insurance for an accountant and a medical surgeon cannot be the same.

How to Select the Sum Insured?

The sum insured for Professional Indemnity Insurance Policy is decided based on the limit of indemnity. The limit is known as Any One Accident (AOA) Limit and Any One Year (AOY) limit which is fixed per accident. The insured can choose the ratio of AOA to AOY from the below-given options:

• 1:1
• 1:2
• 1:3
• 1:4

However, the AOA limit, which is the maximum payable amount during a claim, should be decided by taking into consideration the nature of the work of the policyholder and the maximum number of persons that could be affected or the maximum property damage that is expected to occur, during an accident. Generally, AOA limit is confined to 25% of the AOY limit.

Whatever the case, the sum insured should be selected in such a manner that it covers any legal compulsion that the insured may face at any point in time.

Professional Indemnity Insurance: Claim Process

India only accepts civil liability claims that arise out of the negligence of the policyholder causing injury or death to any other party or causing damage to property that belongs to a third party.

In such cases that can spark a liability claim, the insurer should be informed immediately. If the insured receives any legal notice or summon, that should be sent to the insurer right away. Further, the company will arrange for the defense of a particular case, whenever required.

The insured can use the insurance only if the incident has occurred during the policy tenure and the claim is first made in writing. The insurer will pay the maximum amount including the defense cost, in other words, the chosen AOA limit. With the claim amount or any indemnity paid for an accident, AOY limit goes down. Such claims will be covered up to the total indemnity but not more than the AOY limit.

However, the insurer will not cover you for the claim that occurs as a result of intentional non-compliance or contractual liability, mental injury, libel, slander, etc.

Companies Offering Professional Liability Insurance Policies

The companies offering Public Liability Insurance Policies are as follows:

1. Reliance General Insurance Company:

   Reliance Professional Indemnity Insurance Plan is quite popular because of its quick documentation and comprehensive coverage. All the legal expenses relating to the legal problems arising out of the services provided by professional service providers or professionals are covered. The Professional Indemnity Insurance by Reliance also allows the decrease and increase in the sum insured on a mid-term basis.

2. New India Insurance:

   Public Liability Insurance policies are also offered by New India Assurance. These policies aim at financial protection of the professional in the case of any legal liability. The policy covers only civil liability claims. These legal liabilities can arise out of negligence or errors by you that result in any death or harm to the third-party or any damage to the property of third-party. New India Insurance Professional Liability Insurance also offers an option to avail the group policies.

3. TATA AIG General Insurance Company:

   TATA AIG Errors & Omissions or Professional Indemnity Insurance Cover offers safety and security against the legal liabilities to the professionals. You can raise claims related negligence, omissions, or errors while rendering professional services. The Public Liability Insurance policy is also offered to Law firms, media companies, consultants, financial institutions, IT companies, BPOs and other professionals.

4. United India Insurance General Insurance Company:

   Professional Indemnity Insurance Policy is offered to professionals like Lawyers, CA, Architects, Engineers, Doctors, along with establishments like clinics and hospitals by United India Insurance Company. The term of the policy offered by the insurance provider is 12 months.

5. ICICI Lombard:

   ICICI Lombard Professional Indemnity Insurance Policies are specially designed for doctors. These policies cover legal cases that arise out of the death of any patient or injury to the patient due to negligence, error, or omission. The premium of this policy is based on the limit of the indemnity, ratio of limits, and risk group of the attending doctor. The policy’s jurisdiction is limited within the boundaries of the country.

Professional Indemnity Insurance- FAQs