Professional Indemnity Insurance: Protecting Your Business in Australia

Professional Indemnity (PI) insurance is a crucial form of protection for Australian businesses that provide advice or services for a fee. Also known as Professional Liability insurance or Errors and Omissions cover, it safeguards your business against claims of negligence or breach of duty arising from your professional services.

What Does Professional Indemnity Insurance Cover?

PI insurance offers broad coverage for a range of potential liabilities, including:

• Civil Liability Claims: This covers claims related to breach of duty, unintentional defamation, unintentional infringement of intellectual property, and loss or damage to documents.
• Bodily Injury and Property Damage: Claims arising from bodily injury or property damage directly linked to your professional services can also be covered.
• Legal Costs and Expenses: PI insurance helps with the costs of investigating, defending, and settling claims, including court attendance fees.
• Public Relations Expenses: If your business's reputation is at stake, some policies cover the costs of hiring a public relations consultant.
• Estates and Legal Representatives: In the event of your death or incapacity, your estate, heirs, and legal representatives are also protected against claims arising from your professional services.

Who Needs Professional Indemnity Insurance?

PI insurance is essential for businesses across a wide range of industries that provide specialized or expert advice for a fee. Depending on your profession and location, it may even be a legal requirement. It's crucial to understand your legal obligations, as these can vary by profession and state.

Some of the industries that commonly require PI insurance include:

• Accountants
• Agronomists and agricultural consultants
• Architects and engineers
• Building energy consultants
• General insurance agents
• Human resources professionals
• Interior designers
• Loss assessors and adjusters
• Management consultants
• Marketing, media, and publishing
• Real estate agents
• Registered BAS agents and bookkeepers
• Risk management professionals
• Swimming pool inspectors
• Training organisations
• Travel agents
• Veterinarians
• Work health and safety consultants

Whether you're a small business or a large corporation, if you provide professional services or advice, PI insurance can provide essential protection.

What Isn't Covered by Professional Indemnity Insurance?

It's important to be aware of what PI insurance doesn't cover, including:

• Bodily injury not directly related to a breach of your professional duty
• Claims made before the insurance period
• Terrorism-related claims

How Much Does Professional Indemnity Insurance Cost?

The cost of PI insurance is dependent on various factors. Each business is different, therefore your industry and the services you offer will influence your policy's cost.

Certain professions, like real estate agents and accountants, might be legally required to have a minimum level of PI cover. You may also find that contracts you work on require you to hold a minimum amount of cover.

Having the right level of PI insurance is vital to protect your business's finances and reputation, no matter what industry you are in or the size of your business.

Professional Indemnity vs. Public Liability vs. Management Liability

It's essential to understand the difference between PI insurance and other common types of business insurance:

Professional Indemnity vs. Public Liability

While both PI and Public Liability insurance protect your business against third-party claims, the type of claims they cover differ. Public Liability insurance covers claims for bodily injury and property damage, whereas PI insurance is for claims of professional negligence related to the services you provide.

Public Liability covers incidents that occur during the policy period, regardless of when the claim is filed. Whereas, a PI policy covers you for claims made during the period the policy is in force, regardless of when the professional service was provided.

Professional Indemnity vs. Management Liability

PI insurance covers the advice or service you provide, whereas Management Liability protects the business and personal assets of those in charge from the costs of legal action from allegations of mismanagement, misconduct or legislative breaches, including employment related issues.

How Professional Indemnity Insurance Protects Your Business

Professional Indemnity Insurance safeguards your business from financial loss due to claims of professional negligence. This can include:

• Legal Defence Costs: Covering legal fees and investigation costs associated with defending a claim.
• Settlements and Judgements: Paying for compensation, settlements, or court orders if a claim is successful against you.
• Reputational Damage: Some policies can cover public relations expenses to help restore your business's reputation.

Examples of Professional Indemnity Claims

To illustrate how a claim of negligence could arise, here are some examples:

• Real Estate Agent: A tenant suffers an injury at a rental property due to alleged negligence in maintaining the property.
• Massage Therapist: A client experiences increased pain after a massage and claims the therapist's treatment caused it.
• Accountant: An accountant makes an incorrect tax deduction, resulting in fines and back payments for a client.

Understanding Your Policy

Most PI insurance policies include coverage for:

• Legal Costs: Costs to defend your case in court and for investigation purposes.
• Claims Costs: Costs to resolve a claim, including compensation payments.
• Public Relations Costs: Assistance from a PR consultant to help manage reputational damage.

Exclusions may include:

• Deliberate acts of wrongdoing or criminal activity.
• Claims made by employees.
• Personal injury or property damage (typically covered under public liability insurance, although some policies can extend this cover).

Why You Need Professional Indemnity Insurance

PI insurance offers an important safety net for businesses that provide advice or services, protecting you from potentially crippling financial hardship. It allows you to operate your business with confidence, knowing you have a cover in place if a client alleges your service or advice has caused them a loss.

How Professional Indemnity Insurance Costs Are Calculated

The cost of your PI insurance is based on various factors, including:

• Your industry.
• The specific services you provide.
• Your location.
• The size of your business.
• Your claims history.
• The level of cover required.
• The number of employees and their qualifications.

Run-Off Cover

Because claims can arise long after a service has been provided, you need cover in place after you stop working or retire. This is where run-off cover comes in. Run-off cover provides continued protection after you close your business, leave the profession, or retire. This is not usually included automatically with PI insurance. It needs to be applied for and have an additional premium paid.

Is Professional Indemnity Insurance Compulsory?

For some professions, PI insurance is mandatory and the level of cover is set by regulatory bodies. It is important to check with your regulatory body to understand your specific obligations. Even when not legally mandatory, PI insurance is a valuable cover to protect your business from potentially crippling losses.

Who Needs Professional Indemnity Insurance?

PI insurance is suitable for anyone who provides professional advice or a service. Check with your relevant governing body to see if PI is mandatory. However, any business that provides advice as part of their service should consider having this cover regardless of whether it is mandatory for that profession or not.

Combined Professional Indemnity and Public Liability

For some professions, it can be convenient to combine Public Liability cover into your Professional Indemnity policy. Public Liability protects your business against claims for personal injury or property damage.

Professional Indemnity insurance is a key safeguard for Australian businesses that offer advice or professional services. By understanding what it covers, what it excludes and how it works, you can make sure that your business has the protection it needs to thrive in today’s challenging market.