Large companies, acting in professional roles, need to carry professional indemnity insurance to cover the risks associated with owning a business. Well-Fitted professional indemnity insurance, or PI insurance, provides financial protection against losses arising from acts, errors, and omissions that a customer blames on your business’s professional services.
PI insurance covers expenses incurred when a customer claims financial loss caused by your business. The cost and unpredictability of a liability tort sometimes wipes out businesses. Even the court costs, fees, and settlement cost for false claims, when not covered by insurance, can stress your staff and budget enough to have disastrous effects.
What Constitutes Negligence?
As a community member, common law assigns to you a liability or duty of care. It holds each of us to respect other people and their property. This duty requires us to act with reasonable watchfulness, attention, caution, and prudence. Failure to exercise such respect defines negligence in the eye of the law.
What is Professional Indemnity Insurance?
If negligence occurs in association with a service, product, or advice associated with your business or professionals on your payroll, your business could get sued for liable. Imagine, for example, a New York engineering firm that designs an energy efficient water heating system for one of NYC’s bigger hotels.
A simple calclation error of water volume and rate of use during peak use periods could result in the hotel needing removal, redesign, and reinstallation of a new system. A tort like this, on a major contract, could completely destroy the engineering company’s budget.
Professional indemnity insurance helps companies cover such legal costs and expenses. It protects against damages or costs awarded in a claim against your company when advice, services, or designs cause financial loss for your client or customer.
Professional Indemnity Insurance vs. General Liability Insurance
You’ll see PI insurance commonly referred to as “professional liability insurance” and, in the US, as “errors & omissions (E&O) insurance.” Regardless of which name a policy bears, it differs from general liability service.
General liability and professional liability insurance policies protect from different risk exposures. Insurance for general liability, for example, can protect your business from lawsuits when a visitor slips or falling on its property.
Professional liability insurance, on the other hand, comes into play alleged professional mistakes that cause alleged third-party financial losses. It protects your business from lawsuits over financial losses resulting from products or services.
Do You Need Professional Indemnity or General Liability Insurance?
Most businesses need both professional indemnity and general liability insurance policies to adequately protect them from unexpected lawsuits. Companies in the professional services industry and businesses that rent or own publically accessible commercial property definitely need both. An unpredictable accident on their property or an accusation of breach of contract, including guarantees and warranties associated with services, can give rise to a lawsuit.
However, the amount of coverage needed for each type of coverage varies from industry to industry. A professional insurance broker can help you determine how much coverage is ideal for your business.
Does Professional Indemnity Insurance Protect Against False Claims?
Groups and individuals can sue your business regardless of whether it is at fault. Even if you and your business team have dotted all the “i”s and crossed all the “t”s, false or misconstrued claims against your company can result in extensive costs to defend or settle a position. If your company carries a proper professional indemnity policy, it can keep your business above water, regardless of claim validity.
A professional insurance broker can help you determine which professional indemnity insurance best fits your business risks and assess the level of coverage to best cover those risks. Getting the right PI insurance can save your business from minor liability scuffles, as well as keep it afloat in the event of a major lawsuit.