By Law, professionals are required to perform the services for which the appropriate contract standards hired them.
The first duty may be primarily contractual; the second arises from the principles of tort law. For example, suppose a professional fails to perform his contractual obligations towards his client, and the client suffers owing to the professional’s incompetence or lack of interest in the contractual agreement. In that case, the client is entitled to be restored to the position they would have attained if the contract had been performed as promised.
In brief, professional liability is the failure to use the degree of skill expected of a person in a particular field. This liability from professional services for others can be covered through professional indemnity insurance.
Professional Indemnity insurance is necessary for all actively practicing professionals in every industrial or social field.
Requirement of Professional Indemnity Insurance
Some of the professionals that may require professional indemnity insurance are: –
- Accountants
- Lawyers
- Engineers and Architects
- IT Professionals
- Financial Advisors, etc.
Risks are covered in Professional Indemnity Insurance.
- For physicians and medical establishments, the policy covers all legal liability claims arising out of bodily injury and death of any patient caused by error, omission, or negligence in professional services rendered by the insured or qualified assistants employed by the insured names are declared under the policy.
- For interior decorators, engineers, and architects, the policy provides cover against risks of material damage, construction damage, and death or bodily injury, which may be attributed to a negligent act, error, or omission.
- For accountants, consultants, and lawyers, the policy provides cover against legal liability incurred by the insured by way of losses to clients arising out of acts of errors, negligence, or omission on his part or part of his paid employees named in the policy.
Compensation Offered in a Professional Indemnity Insurance
A professional indemnity insurance policy promises to pay all sums (subject to indemnity limit) which the insured becomes legally liable to pay as damages to their customer in respect of errors and omissions while rendering professional services arising out of claims during the policy period.
The indemnity also includes the legal costs and expenses besides the compensation claim. Yet, the legal fees and expenses incurred are subject to the insured’s prior consent and the indemnity limit.
In Professional Indemnity Policy, the sum insured is referred to as the Limit of Indemnity. This limit is fixed per accident and per policy period, which is called the Any One Accident (AOA) limit and Any One Year (AOY) limit, respectively.
The ratio of AOA limit to AOY limit may be:
- 1:1
- 1:2
- 1:3
- 1:4
The AOA limit, which is the maximum amount payable for each accident, should be fixed, considering the nature of the activity of the insured and the maximum number of people who could be affected, and the total property damage that could occur in the worst possible accident.
In the Professional Indemnity policy issued to engineers, architects, interior decorators, lawyers, advocates, solicitors, counsels, chartered accountants, financial accountants, and management consultants, the Any One Accident (AOA) limit may be restricted to any of the above-given ratios.
How to claim under Professional Indemnity Insurance?
“liability” means responsibility, and “legal liability” means obligations that Law can enforce. Legal liability may be classified into Criminal Liability and Civil Liability. Only Civil Liability claims are payable.
Civil Liability claims will arise if there is prima facie evidence of negligence by the insured resulting in injury or death to any third party or damage to property belonging to a person other than the insured.
Negligence will be proved only when the following conditions are satisfied:
- Existence of duty of care,
- Breach of this duty,
- The injury suffered by a person or property damaged due to that breach.
In case of any event likely to give rise to a liability claim as described above, the insurance company should be informed immediately. If any legal notice or summons is received, it should be sent to the insurance company. The company has the option of arranging the defense of the case.
The event giving rise to the claim should have occurred during the period of insurance or retroactive period, and the claim was first made in writing against the insured during the policy period. The AOA limit will be the maximum amount payable, including defense costs. The Any One Year limit will get reduced by the amount of claim or indemnity paid for any one accident. Any such claims made during the policy period will be covered subject to the total indemnity not exceeding the Any One Year limit.
The policy will not pay for claims arising from contractual liability, intentional non-compliance of any statutory provision, loss of goodwill, slander, fines, penalties, libel, false arrest, defamation, mental injury, etc.
Major Exclusions
When any liability arises out of any criminal act or act committed in violation of any law or ordinance, services rendered while under the influence of intoxicants or narcotics.
Bottomline: Professional Indemnity is Essential for Professionals
Many professions need professional indemnity insurance as part of their respective industry body’s regulatory requirements. However, even if you are not obliged to have professional indemnity insurance, without it, you could be liable for claims worth of legal fees and compensation payments and also lost income from the time spent defending any allegation.
