Five Smart Things to Know About Professional Indemnity Insurance

Under section 124 of the Indian Contract act 1872, professional liability insurance is a contract between an insurer and the insured where the insurer is duty-bound to save the insured against any losses caused by discharging professional duties toward the clients. Professional indemnity insurance, also known as professional liability insurance, is only applicable if the insured party unintentionally has committed the wrongful act.

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Let us discuss the five smart things to know about professional indemnity insurance.

Scope of Professional Indemnity Insurance

Professional indemnity or professional liability insurance is only meant for professional workers such as lawyers, doctors, chartered accountants, and engineers. It has nothing to do with the occupational worker or employee of a company. Instead, it covers the cost of all negligible acts that professionals may undertake in the course of their contract.

For example, a doctor may avail of DPI (Doctor Professional Indemnity) insurance, where the insurer will cover all the losses incurred by the doctor while performing his duties. Similarly, a lawyer and chartered accountant may also avail of professional liability insurance in order to get indemnified against the wrong pieces of advice, which may cause loss to their clients.

Applicable for Unintentional Damage

An insured can only claim the losses if they occurred due to omissions and unintentional errors. Unfortunately, errors and omissions occur in the medical and legal professions. Hence, the doctors and lawyers may be compelled to discharge their liability to a third party person.

In this situation, they may escape from their liability by purchasing a professional indemnity insurance policy. It is important to note that if the act of negligence has been caused due to the influence of an intoxicant substance, the insurer is not liable to indemnify the insured party.

Loss to the Third Party

The indemnity insurance claim can only be executed if a third party has suffered from a loss. For example, if the hospital faces litigation prosecution due to the negligible act of a surgeon, the insurer is not bound to indemnify the hospital. Nevertheless, if any legal action has arisen against the surgeon, the insurer may provide a panel of lawyers to the surgeon and indemnify him against the order or judgment of a court in favor of the victim.

Similarly, if a client of a chartered accountant or lawyer suffers from damage due to their advice, the insurer is liable to indemnify them against the losses.

Professional Indemnity Insurance is only meant for Civil Liability

Any liability arising from a criminal act or any act that has been committed by the insured is in violation of the law or rules established by the legislation; the insurer is not bound to indemnify the insured. Accordingly, such liabilities are not entitled to cover under indemnity insurance policies.

Listed below are the liabilities which can be covered under the professional insurance policies:

  • Tort
  • Breach of contract
  • Punitive monetary damages, or
  • Any other liability which are not subjected to punishments under criminal law, but are blameworthy to fine and compensation under civil law.

Professional bodies

The professional insurance policy is not only meant for professional workers. For example, professional bodies such as law firms, hospitals, or IT companies can also get indemnified under the professional insurance policy. Generally, the hospital and companies get sued for the negligible act of the employee. Hence, they may claim protection under professional insurance policies.

Conclusion

Professional indemnity insurance is a necessity for every professional worker. Unfortunately, the cases against professional bodies and workers are rising and taking place on a daily basis. Hence, it is important for them to get indemnify by purchasing indemnity insurance policies. A third party may also communicate to the insurer without the insured for settlement of claim.

Written By: PolicyBazaar - Updated: 18 January 2023