Human error is natural and inevitable. But human errors can cause enormous loss and may put an end to business (service provider) or career of a professional. Inadequate services, error in judgement, medical diagnosis and incorrect advice can land the service provider or professional in legal trouble if the client takes the legal action to seek compensation. This is where the role of professional indemnity insurance comes into play.
What is professional indemnity insurance?
Professional indemnity insurance is a type of business insurance that indemnifies the service provider company or the professional when they commit an error that landed them in legal trouble. Professional indemnity insurance provides coverage for the legal cost incurred for defending the claim and the compensation to be paid to the client who initiated the claim.
Why is it important to have professional indemnity insurance?
When you work hard towards your profession or business, for its growth, it makes sense to protect it. Professional indemnity insurance is an ideal way to secure yourself and your business against the claims of malpractice, negligence or error. Businesses or professionals are often sued because of the mistakes they make. If the client takes the legal action, financial loss that you may suffer would take a very long time to recover or it can even end your business or career. Hence, availing professional indemnity insurance is very important for the following reasons:
- To mitigate the risk of litigation that may arise due to unintentional errors
- Indemnity insurance lowers the chance loss for risky businesses and profession
- Indemnity insurance helps in securing the reputation of their practice or profession along with protecting the personal asset
Features and benefits of professional indemnity insurance
Professional indemnity insurance policies offer numerous benefits and features. Some of the key features and benefits of professional indemnity insurance are:
- Lawsuit protection: The indemnity insurance provides protection against lawsuits brought against the insured regardless of the actual wrongdoing. The insurance policy covers compensation, settlement or damages awarded to the claimant along with legal costs incurred to defend the case
- Coverage: The policy provides exhaustive coverage against various potential risks to the profession or to the business.
- Customisable: Professional indemnity insurance policies are customisable based on the nature of business or profession and specific requirements relating to the nature of professional services offered.
- Simple and hassle-free: Availing indemnity insurance plans are quite simple in India with hassle-free and minimal documentation requirements.
- Flexible: Most of the indemnity insurance plans offered are flexible which allows the insured to adjust the coverage based on the requirement.
Who can avail professional indemnity insurance?
Professional indemnity insurance policies can be availed by various types of professionals and service providing establishments in order to protect their career, business and personal integrity. Professionals such as doctors, engineers, lawyers, architects, medical practitioners and chartered accountants can seek professional indemnity cover. Service providers like hospitals and medical establishments can also seek this indemnity cover to secure themselves financially against various risks relating to professional duties.
How does professional indemnity insurance policy work?
Professional indemnity insurance policies work on a claims made basis. Professional indemnity insurance basically covers the claims that may result from a breach of professional duties. It is also known as errors and omissions (E&O) insurance in the United States. As the policy provides cover on a claims-made basis, only those claims registered during the tenure of the policy are covered. It’s important to renew the policies on time to enjoy the continuous coverage. It’s important to note that the financial losses caused due to a professional error, improper advice and out of negligence are covered only if those errors were committed during the policy period.
What is the retroactive date in professional indemnity insurance
A retroactive date is a date from which you have held professional indemnity cover. The retroactive date is prior to the date of inception of professional indemnity insurance. Basically, retroactive date helps you avail the cover for your past work and the mistakes that occurred in the past, which is before the policy start date. This concept of ‘backward’ cover can be for several months or years before the commencement of the policy. For example, an architect can be held financially or legally responsible for the work that was completed a year ago on the grounds of deterioration of material or cracks etc. The best part of the retroactive date is it helps you get cover for such old works also.
What is a doctor’s professional indemnity insurance?
In today’s litigious world, there has been a steep rise in a negligence claim against doctors. Considering the legal and financial threat involved in the medical profession, there needs to be a special cover for doctors to protect themselves against various professional risks. In order to protect their professional interest, doctors and medical establishments can avail professional indemnity insurance.
Doctor’s professional indemnity insurance covers the legal liabilities which includes the cost of defending claims, investigation cost, cost of representation and compensation to be awarded to claimant etc. The claims arising out of death or bodily injury caused by error, negligence or omission.
However, the coverage excludes criminal acts, plastic surgery, HIV/AIDS, punitive and exemplary damages, blood banks, weight reduction and acts committed under the influence of intoxicants.
Scope of coverage in professional indemnity insurance
Following are the coverages offered by professional indemnity insurance:
Legal expenses and cost:
The policy covers the cost of defending the legal claims made against you.
If the case goes in favour of the claimant, policy compensates for the compensation to be awarded to the claimant.
Even after the business ceases to trade, there may still be a chance of claims against a business for the work carried out before at the time of running the business. Such claims are covered in run-off cover.
Exclusions in professional indemnity insurance
Following are the exclusions under professional indemnity insurance:
- Claims arising out of libel, slander, wrongful eviction, false arrest, defamation and wrongful detention etc.
- Claims arising out of anguish, shock or mental injury
- Infringement of plans, trade name, patent and copyright
- Fraudulent, criminal or malicious act
- Bodily injury, death, disease, property damage, financial loss or consequential loss unless arising out of wrongful or inadequate advice or design.
- Contractual liabilities
- Intentional and deliberate non-compliance of statutory provisions
- Punitive and exemplary damages
- War and nuclear perils
- Natural calamities and atmospheric disturbance
- Alcohol and drug abuse, etc
List of companies providing professional indemnity insurance in India
There are various general insurance companies that offer indemnity insurance. Following are the top insurance providers that offer professional indemnity insurance in India:
1. Tata AIG General Insurance Company:
Professional indemnity/error and omissions policy offered by Tata AIG General Insurance Company provides customised solutions to various professionals such as IT companies, financial institutions, law firms, media companies and other professionals. The coverage is provided against claims arising out of negligent acts, errors or omissions in the professional services rendered by these companies.
2. Reliance General Insurance Company:
Professional indemnity insurance offered by Reliance General Insurance Company provides comprehensive coverage against various risks associated with the performance of professions such as error, professional neglect and improper advice etc which may lead to legal claims. The policy offered is customisable and flexible.
3. New India Assurance Company:
Professional indemnity insurance policy offered by the New India Assurance Company offers financial security against various litigations that may arise due to a breach of professional duties and negligence. The indemnity coverage can also be availed as a group policy. The coverage includes death, bodily injury and third-party property damage.
4. ICICI Lombard General Insurance Company:
Professional indemnity insurance offered by ICICI Lombard General Insurance Company provides security against various ‘professional indemnity risks’ the business or the professional is exposed to. There is also separate and special coverage designed for doctors and medical establishments.
5. Bajaj Allianz General Insurance Company:
Indemnity insurance cover offered by Bajaj Allianz General Insurance Company offers exhaustive coverage against various professional risks. These policies can be availed as group policies also.
To sum up, professional indemnity insurance protects your professional interest and prevents you from committing professional mistakes. With indemnity insurance, service provider businesses can run smoothly without having to worry about litigations.
Frequently Asked Questions:
1. What is the cost of availing professional indemnity insurance?
Cost of professional indemnity insurance depends on various factors such as type of profession, nature of services provided, risk exposure to a particular profession, the annual turnover of the business and previous claim history if any etc. For example, an investment advisory firm is considered to have high-risk exposure in comparison to a recruitment consultancy firm in terms of quantum of loss that a professional indemnity claim may cause. Hence, the cost may vary depending on the risk exposure to the particular business. Rates may also vary from insurance company to insurance company depending on the market competition. Usually, the premium rates may vary between 0.5% and 5% of the annual turnover of the business or the professional seeking indemnity insurance.
2. What are claims made policy?
Claims made policy refers to an insurance policy wherein the requirement of coverage is triggered only when the claim is made against the insured during the policy tenure. However, the retroactive date is an exception to this as the policy with a retroactive date can cover past mistakes and claims as well.
3. Is professional indemnity insurance a compulsory legal requirement?
No. professional indemnity insurance is not compulsory by law for everyone. But, having an adequate professional indemnity insurance cover is essential to secure your business or profession from exorbitant compensation you may need to pay in the event of a claim. Regardless of whether the claim is justified or not, it’s worth availing indemnity insurance to stay prepared for the consequences of litigations.
4. How much professional indemnity insurance is ideally needed
Indemnity insurance plans come with various limits. However, the policy can be customized based on the following factors:
- Size and nature of business
- Risks involved in the industry
- The estimated cost of defence and compensation for similar businesses
- Size of clientele
The requirement of coverage ultimately depends on the risk exposure the business has.
5. What is a civil liability?
In indemnity insurance, civil liability refers to the amount that you are liable to pay for potential damages following a lawsuit.