Keeping you covered

Members can now enjoy peace of mind with our professional indemnity insurance scheme, which has been launched exclusively for SELECT. But what IS professional indemnity insurance? What does it protect against? And how do you know if you need it? Here’s an overview of how it could prove vital if the unthinkable happens…

What is professional indemnity (PI) insurance?

PI insurance is a type of liability insurance which is designed to protect businesses and individuals who provide advice, design or expertise to third parties. Also known as Professional Liability or Errors and Omissions Insurance, this cover is designed to protect you if a customer alleges that you provided faulty or inadequate advice and services.

For businesses involved in the contracting industry, a ‘design and construct’ PI policy wording is needed – this is a specific type of policy designed to protect the professional activities of businesses working within the contracting sector.

What does it cover?

This is the important bit! PI insurance covers the cost of your legal defence, along with compensation you may need to pay out to a third party following a claim made against you.

It’s worth noting you don’t actually need to have done something wrong to call on your PI policy cover – an allegation is enough.

What does it not cover?

Claims made by third parties if they are injured, become ill or have their property damaged during the course of your work, or as a result of or arising from a product you’ve manufactured, supplied or distributed.

These events are more properly covered by public and products liability insurance. It’s also important to note that Pl insurance does not provide cover for defective workmanship.

So do I need PI cover?

Many professions need PI insurance as part of their respective industry bodies’ regulatory requirements, or if required under the terms of a contract.

Though it’s not a legal requirement for everyone, PI insurance should be considered as essential for any company or sole trader offering advice, design, knowledge or skills as part of their services.

With PI-related claims becoming more common, this type of insurance is now forming an integral part of many companies’ business insurance programmes.

What should I consider when arranging PI cover?

The first thing to take into account is an adequate limit of indemnity. PI insurance is sold in varying limits, so when deciding what limit is required,

you should consider:

The size of your business
The size of the clients that you deal with
How much it might cost to defend yourself in court
If there are any industry regulated or contractual requirements.

The second thing to consider is the type of limit you require. Policies tend to have their limits of indemnity arranged on either an ‘any one claim’ or ‘aggregate’ basis of cover.

The benefit of an ‘any one claim’ policy is that it provides cover up to the full limit for each individual claim made in the period of insurance, whereas an ‘aggregate’ policy gives cover up to the full limit for all claims made in the period of insurance. Clearly, it’s preferable to have your insurance arranged on an ‘any one claim’ basis, with cover for defence costs being in addition to the limit of indemnity, rather than included within it.

How might a PI claim arise?

To give an idea of how claims can arise, some real-life examples are shown below:

CASE STUDY 1: A client alleged that the emergency lighting their electrical engineering contractors had installed was inadequate and did not comply with relevant regulations following installation at an industrial unit. A claim was submitted for £80,000.

CASE STUDY 2: Heating and ventilation engineers designed and installed a heating system but following the work, their client alleged negligence in the design of the system. A claim was submitted for £380,000.

CASE STUDY 3: Electrical contractors designed and supervised the installation of the mechanical and electrical services in a shopping centre. Operational difficulties became apparent with the air-conditioning, allegedly due to a design fault.

A claim was submitted for £850,000.

Where can I find out more about PI insurance?

Look no further than the SELECT website – here you’ll find full details of the new scheme. A new brochure is also now available from your Member rep and to download from the SELECT website.