If a client suffers – or claims to suffer – financial or reputational damage as a result of your advice, your business could face legal action. Even if you've done nothing wrong, the cost of defending yourself can be eye-watering.
This is where Professional Indemnity Insurance – or PI for short – comes in. If a client or former client makes a claim against your business PI picks up the bill. That includes legal costs and any compensation.
Sometimes known as professional liability insurance, don't confuse PI insurance with public liability insurance, which covers your business against accidents and injury to the public. Professional indemnity insurance is different, covering you for financial, sales or reputational damage that could result from your professional services.
If your business gives advice, consultancy, offers a professional service, or handles data or intellectual property belonging to your clients, you may need PI. It can be particularly relevant for PR and marketing consultants, designers, IT consultants and web developers, amongst others.
As well as protecting your business against claims, professional indemnity also has a role in helping you win or retain clients, with many companies now insisting that their suppliers have it.
Everything looks rosy when you win that new client, but what if things turn sour? If the project doesn't go as planned, they could allege you breached the contract.
Or if an employee accidentally sends sensitive information to the wrong client? Again, you could be liable, with legal fees and compensation to deal with.
Check that your suppliers and contractors also have Professional Indemnity Insurance, particularly those whose work directly impacts your clients. Having professional agreements in place with suppliers is also a must, so if anything goes wrong with their part of the job, you may be able to hold them liable.
You can reduce your own exposure through internal checks and systems, ensuring you're consistently delivering quality work. And always have your customer contracts and website T&C's legally reviewed.
You must correctly declare your business activities to your insurer, updating them if anything changes. This is particularly important if you have customers in the USA or provide legal, financial or medical services, where you may require specialist advice.
When choosing a level of cover, think about the potential financial impact if things went pear-shaped with a client. Some clients will request a certain limit but you should also consider expensive legal costs in addition, and the possibility of multiple claims in the same period.