We caught up with our Financial and Professional Risks (FinPro) team to explore some of the common misconceptions surrounding Professional Indemnity Insurance, examples of the risks businesses can encounter, and some practical considerations to keep in mind.
- What is the biggest misconception businesses have about Professional Indemnity Insurance?
One of the biggest misconceptions is that a business must actually have been negligent for a claim to be brought against it.
Professional Indemnity Insurance is designed to respond to allegations of professional negligence, subject to the terms, conditions and exclusions of the policy. An allegation does not necessarily mean that the business has done anything wrong, but it may still need to respond to or defend itself against a claim.
This is an important distinction. Even where an allegation is ultimately unsuccessful, dealing with a claim can potentially involve time, resources and professional support. That is why businesses should think beyond whether they believe they are likely to make a mistake and consider the wider risks associated with the professional services they provide.
- What’s one claim or risk scenario you’ve seen that surprised you?
One situation that particularly stood out involved a client tendering for a contract with a very large media organisation. Our client would have been responsible for distributing promotional material relating to upcoming shows and televised events.
As part of the proposed agreement, the contract stated that the client must accept responsibility for any consequential loss incurred both in the UK and overseas.
At first glance, accepting responsibility if promotional material was leaked, stolen or released to the public before a specified date and time may have seemed understandable. However, a closer review highlighted just how far-reaching the contractual requirement potentially was.
The consequential loss provision extended to a much wider range of potential losses, including lost sponsorship and losses associated with televised sporting events, on a worldwide basis. Given the potential implications of accepting such a broad contractual responsibility, the client was advised to seek specialist legal advice before agreeing to the terms.
It is a useful example of why businesses should pay close attention to the contracts they enter into and understand the extent of the liabilities they are being asked to accept.
- What’s one thing every business should review before renewing their Professional Indemnity cover?
One area businesses should pay particularly close attention to is policy endorsements and exclusions.
Businesses shouldn’t simply assume their renewal documentation is unchanged from the previous year. It is important to review the Policy Schedule alongside the insurer’s full Policy Wording and understand whether any endorsements, restrictions or exclusions could affect the cover being provided.
We have increasingly seen endorsements that may previously have appeared on the Policy Schedule included within the insurer’s Policy Wording instead, particularly in areas such as fire safety and basement exclusions.
This makes thoroughly reviewing renewal documentation especially important. If anything is unclear, businesses should speak to their insurance broker so they understand the scope of their cover and any restrictions that may apply.
- If you could give businesses one piece of risk management advice, what would it be?
Review your supply chain. Your risk doesn’t necessarily stop with the work carried out directly by your own employees. If your business appoints bona fide subcontractors (BFSCs), it is important to regularly check that they maintain appropriate insurance for the work they are carrying out. For example, if an error made by a BFSC results in your client suffering a loss, the client may pursue a claim against your business. Depending on the circumstances, your insurer may subsequently look to recover its costs from the subcontractor’s insurer.
Regularly reviewing subcontractors and their insurance arrangements can therefore form an important part of a business’s wider risk management approach.
- What do you enjoy most about working in the FinPro team?
100% my colleagues! I honestly couldn’t ask for a better team. Working within such a supportive team means being able to draw on different experiences and perspectives when helping clients navigate their professional risks. It’s great to work alongside people who genuinely support one another and share the same commitment to helping clients understand their insurance needs.
Speak to our FinPro team
Professional risks can vary significantly from one business to another, and seemingly small details within a contract or insurance policy can have wider implications. Taking the time to understand your exposures, review your contractual responsibilities and regularly assess your insurance arrangements can help you make more informed decisions about the risks facing your business.