Professional Indemnity Insurance and your contractual requirements

Professional Indemnity Insurance covers freelance contractors or consultants from complaints that can lead to disastrous consequences. If you offer advice or professional services to clients, you should seriously consider taking out Professional Indemnity Insurance to cover possible legal fees and compensation costs as this can get expensive and can impact you financially.

Professional Indemnity Insurance covers you for:

Libel or slander: This is also known as defamation. If you spread false rumours or share anything confidential that could harm the client's reputation.  

Cover against loss or damage documentation: If you damage or lose any confidential or valuable documentation. 

Negligence in-service protection: Covers you for any mistakes or if things go wrong because of something you have done or advice you have given. 

Cover for infringement of intellectual property rights: This covers breach of copyright laws including written work, visual work, photography and performances.  

Do I need Professional Indemnity Insurance? 

Professional Indemnity Insurance isn't a legal requirement, although a lot of clients will ask for you to have it prior to working with you. Especially if you offer advice, provide services or offer fitness training. If you work in any of the following professions, you will benefit from having Professional Indemnity Insurance: 

• Consultant
• Designer 
• IT Professional 
• Accounts or Bookkeepers 
• Private tutors, including fitness trainers 

How does Professional Indemnity Insurance work? 

Professional Indemnity Insurance works on a claims-made basis. It protects you from any claims or complaints made against you or your work, helping cover any legal or compensation costs. 

Claims-made insurance allows clients to claim against the work you completed in the past. If you are retired or have sold your business, you should still hold a level of ‘run off’ cover to protect you from any future claims.

Run-off cover 

If you no longer need on-going cover and eventually decide to cancel your policy, you'll find most insurers offer something called run-off insurance. Run-off insurance protects you from any claims submitted after your Personal Indemnity policy has expired. If you don't opt for run-off insurance, and an ex-client puts in a claim against you, there is a chance you'll be liable for any legal fees and additional costs. 

There are two run-off cover options available: 

• You can make a single payment for the agreed level of run-off cover. For example, 7 years. 
• Continue with annual cover with the proportionate charge, reducing each year as the insurable exposure reduces (on the basis that no claims are received).

You should ideally get legal advice on any of your contractual obligations before deciding on an adequate period of cover. The length of cover you need will depend on the type of work you provide the client. 

Contractual Requirements 

As part of your contractual requirements, most clients and professional bodies (such as ACCA) require you to have Professional Indemnity Insurance to be able to work with them. If you don't have Professional Indemnity Insurance, the number of projects you can work on will be limited. The Insurance is not restricted per client, so the simplest solution is to maintain on-going cover for your different business activities across the different clients you have signed contracts with. 

Some clients may request a higher limit than what you are covered for, meaning you may incur higher premiums for an extended period until the contractual reporting period is reached. Some contractors will cover this cost by charging it on to the client within their fee, especially if it's over a long period of time. 

If you're a consultant and receive work through a recruitment agency, it is unlikely that any insurances they offer you will cover Professional Indemnity. It is therefore advised that you will need to thoroughly research each contract prior to taking the work on to ensure that you are fully covered.