Professional Liability or Professional Indemnity (PI) coverage is designed to protect traditional professionals (e.g. physicians; engineers; accountants) and quasi-professionals (e.g. real estate brokers; mortgage brokers) against liability incurred as a result of errors and omissions (E&O) in performing professional services for clients or customers.
Another way of thinking of this is where one party is relying on the advice of another and that advice has been provided for a fee, rather than as part of a product, Professional Indemnity coverage should always be considered a requirement or must have.
Something further to consider – If you provide a product that has the potential to cause another party a pure financial loss if it is installed, repaired or serviced incorrectly, with no consequential physical damage or injuries, you should also consider PI or E&O cover.
Historically, insurance for professionals such as lawyers was called Professional Indemnity; policies for quasi-professionals were labelled Errors & Omissions cover, however, insurance companies now tend to use the terms interchangeably and speak more of Errors & Omissions cover relating to business activities not traditionally regarded as “Professional Services” but in need of Errors and Omissions cover all the same such as Trades & Services.
An example where Trades & Services business activities will require Errors and Omissions coverage would be an Electrical Contractor who has established a “Test and Tag” service in the business. The electrician is now providing a safety certificate to their customer for their advice on whether the electrical cabling is safe. A fee for this certification process is charged out and we have a situation where a customer is relying upon the advice of a skilled person, and has paid for that advice. This is different to an electrician providing a product which is a new electrical cable or repairing a cable, where Public and Products Liability alone would be adequate enough to provide the required insurance protection.
Auto Mechanics who provide Safety Certificates and/or conduct vehicle Compliance certifications have a need for Errors and Omissions cover.
Both Professional Indemnity and E&O policies cover economic losses suffered by third parties but not always property damage or physical personal injury — which is typically covered under your general liability policy. Most PI and E&O policies will in fact exclude coverage for bodily injury / physical personal injury — with the key exception of professional indemnity/medical malpractice for doctors. More often these days an insurance professional acting on your behalf will argue to include bodily injury claims within the Professional Indemnity cover provided by the insurer regardless of the business activity.
Further Examples of Activities that Need Coverage…
In addition to lawyers, doctors and accountants, many businesses need Professional Indemnity or Errors and Omissions insurance. You don’t have to consider yourself a “professional” to require coverage for negligent acts. If you give advice and recommendations, if you create programs or products for your customers or if you provide a service, you need to consider this broader liability protection.
Take, for instance, an interior designer. In the subjective world of interior design, one person’s beautiful kitchen is another person’s disaster. The opportunities for misunderstandings and errors abound. If the client says the wrong materials were used, a costly lawsuit is possible.
Examples of other professionals who need protection include:
- Real estate agents
- Data processors
- Pest control services
- Appraisers
- Electrical Contractors who include test and tag
- Information Technology Specialists
- Computer Repair Services
- Engineers & Architects
- Town Planners
- Human Resource Consultants
- Landscape Designers
- Business Training Courses / RTOs / Consultants
- Project Managers
- Event Managers / Wedding Planners
Defence Costs
One of the most important reasons to hold the right insurance coverage is for defence costs. Even if our interior designer can show that the client signed off on the materials and the schedule, the cost to defend the lawsuit could put a small business, out of business.
Where there is a need to defend yourself or the business needs to defend itself against allegations of an error being made, even if you feel it is simply not possible, a non-sense based allegation and frivolous claim, you and/or the business may incur substantial legal costs even for a successful defence.
Your insurance company stands in your corner, backing your business against frivolous allegations just as much as providing protection for the real claims. Insurance is there to ensure you can successfully defend the claim, whether it be paying for legal costs only or paying for legal defence costs as well as payment to a third party.
Claims-Made Policy
It is important to understand that almost all Professional Indemnity and E&O policies are written as “claims-made,” which means the policy only covers claims filed during the policy period. A few companies offer occurrence-based policies, which cover any qualifying claim arising from an incident that occurred during the policy period—no matter when filed. If you switch from a claims-made to an occurrence policy, you have to make sure you don’t create a gap in coverage.
In specific situations, a claims-made policy may allow an extended period for reporting claims: when an insured dies, retires or becomes permanently disabled. This is an important feature, because new claims can be filed years after the policy period. This and/or a Run-Off cover is certainly something to plan for if retirement is in your near future or you intend to close a business entity with no immediate succession plan that maintains the business name and insurance program currently in place.
Questions?
If you have any concerns about your Professional Indemnity policy, errors and omissions coverage or any liability coverages for your business, please give us a call.
