Quite often we hear new contractors tell us that although they know they are required to have certain types of insurance, they have no idea why they need it. This sometimes results in contractors treating insurance as a bit of a box-ticking exercise, taking it out because they’re told they need it, but paying little heed to what they’re covered for, or how much the policy is worth. Even worse, some contractors let their policies lapse between contracts, figuring they only need them when they’re working on a contract.
All too often, this can prove to be a very big, very expensive mistake – especially when it comes to professional indemnity cover, one of the basic forms of insurance that every contractor needs.
What does professional indemnity cover do?
Simply put, professional indemnity cover is designed to protect you, as a contractor, against claims of professional negligence, loss of documents, loss of data, breach of intellectual property, defamation and libel. “But I’m always really careful,” we hear you cry.
We know. We do understand. But no matter how amazing you are at your job, no matter how careful and conscientious you are, you’re only human and, unfortunately, humans do sometimes make mistakes. And the thing with making a mistake as a contractor is that it can cause big problems for your client – and that could result in a claim made against you.
This is where professional indemnity insurance steps in. It would help to cover the compensation you have to pay, plus the legal costs that you incur in the process.
What is a ‘claims made’ basis?
“OK,” you say. “I can see why that would be useful. But why do I need to take out an annual policy? Surely I just need cover for the duration of my contract.” We can see why you’d think that, but most professional indemnity policies work on a ‘claims made’ basis. This means you’re only covered for claims made against you during the term of the policy.
So, if you were to end your policy at the end of your contract and, two months later, a mistake was discovered and a claim made against you, you wouldn’t be covered. This is why we recommend contractors maintain their professional indemnity policy even when outside of a contract so that you are covered no matter when a claim is made in the future.
Can you give me an example of a professional indemnity insurance claim?
Dave is a draughtsman, working through his limited company, and is contracted to work on a large building project. He creates the technical drawings for several staircases in the building, which were then constructed based on his design. However, it was then discovered that his drawings included incorrect measurements, meaning the staircases were too short and had to be redone, costing additional money, and causing a delay in the overall project.
His client claimed against Dave’s company on the basis of professional negligence, seeking compensation to cover their costs. Dave’s company accepted the liability, and the professional indemnity insurance covered the cost of compensation and his legal costs.
Jo provides services as an app developer through her limited company and is hired to create a customer-facing app for a major healthcare service. The purpose of the app is to make it easier for them to access their account, book appointments and view their records.
Unfortunately, a mistake in Jo’s coding results in a security lapse and customer data is compromised, meaning Jo’s client must pay fines as well as suffering reputational damage.
A claim is made against Jo’s company because of her mistake, but the professional indemnity cover Jo took out means the compensation and legal costs are covered.
Is there a legal requirement to have professional indemnity cover?
There is no formal legislation to force contractors into taking out professional indemnity insurance. However, you will find that most clients, recruiters and agencies stipulate it as a requirement in your contracts (along with public liability insurance and employers’ liability cover). This means that you are obliged to have a valid professional indemnity policy when you sign your contract, or else you could be found in breach of it, which could create legal problems further down the line.
What is the cost of not having professional indemnity cover?
The best way to look at this is to think about your clients and what their businesses are worth. The answer is probably along the lines of “a lot of money,” right? If you make a mistake that results in a claim, that claim could be for tens or even hundreds of thousands of pounds. Imagine if you had to pay this yourself out of your own pocket.
If you have sufficient professional indemnity cover, however, you’re protected financially as the cost of any claims will be covered by your insurer.
So, what is Kingsbridge’s professional indemnity cover like?
Kingsbridge’s professional indemnity cover comes as part of our comprehensive contractor insurance package, which also includes public liability insurance, employers’ liability cover, occupational personal accident cover, and directors’ and officers’ liability insurance. This gives you complete peace of mind on all fronts.
And as for professional indemnity cover specifically, ours is offered on an any one claim basis. This means that if you take out cover worth £1 million, for example, you could make multiple claims worth up to £1 million each, rather than up to a cumulative total. As well as professional negligence, our policy also covers you for loss of data or documents, breach of IP, and defamation and libel, allowing you to rest easy knowing that you are covered.
For more information or a quote, you can call our friendly, expert team on 01242 808740, or if you’re ready to get a quote and purchase, you can simply buy online.
