Humans are by nature, likely to make mistakes no matter how smart, hard working and articulate they are, but the consequences of our errors can have a huge impact on the economy and the company profits. Negligent acts, errors or omissions that are made by practitioners whilst carrying out professional duties can leave them and/ or their organisations bankrupt and bring it into disrepute due to lawsuits from clients and third parties. Professionals such as Consulting Engineers, Architects, Quantity Surveyors, Lawyers, Accountants and Project managers need protection against financial effects of their negligent acts, errors or omissions.
Professional indemnity(PI) is a form of liability insurance which helps protect an organisation from the financial effects of actual or alleged negligent acts, errors or omissions in performance of their professional duties. This type of cover allows professionals to offer services without fear that they may be sued by a client or third party. The insurer will pay on behalf of the insured damages resulting from amongst others; any claim for breach of duty, infringement and lost documents in accordance with the policy terms. Without a PI policy, professionals are exposed to high risks that can have a detrimental effect on their cash flow, reputation or even cause the closure of the operation.
It is a requirement in some professions such as Engineering and Accounting to have professional indemnity insurance in place. However, this type of cover is not a regulatory requirement in most professions but other sectors can benefit from it, for example, Graphic designers, Business consultants, Editors and IT professionals.
The amount of insurance cover that should be purchased will vary depending on the profession, the nature of the contract and its value. It is crucial for professionals or organisations to engage a Broker or Agent to assess the risks and the amount of financial damage that may be incurred, because the greater the risk , the higher the cost of cover.
The limit of indemnity under a PI policy is inclusive of costs and expenses in addition to the amount of any award that may be made against an organisation. Therefore low limits of indemnity tend to be exhausted by legal expenses before any award can be paid. In these instances any further expenses or award(s) are for the insured’s own account.
Insurers shall not be liable to indemnify the Insured in respect of claims in connection with terrorism, civil war, nuclear material, loss of or distortion of computer data, death or bodily injury to or illness or disease sustained by any person under a contract of employment or apprenticeship with the Insured.
In most developing countries, the market for insurance products for the diverse emerging professions continues to grow and bring with it its own challenges of determining value and settling claims. As much as organisations cannot error proof, they can ensure that they purchase as much professional indemnity insurance as the organisation can afford which will in turn give them peace of mind.