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Indemnity insurance policy
Professional Indemnity Insurance
If you are alleged to have provided inadequate advice, services or designs to a client, professional indemnity insurance provides cover for the legal costs and expenses in defending the claim, as well as compensation payable to your client to rectify the mistake.
What is Professional Indemnity Insurance?
The word ‘indemnity’ refers to protection against a financial loss, therefore as the name suggests itself, Professional Indemnity Insurance cover is designed for a target group that includes architects, doctors, engineers, chartered accountants, lawyers, medical practitioners to protect their business from legal claims. Whether you own a small or big business, you may be accused of providing poor services, advices or designs that cause your client monetary losses.
In this litigious world, one single legal liability is enough to ruin your position in the market or for the rivals to take-over you. Professional Indemnity Insurance policy covers you for all these expenses and safeguards your business.
Why Professional Indemnity Insurance?
Regardless of how many years of experience your firm may have, there is always the possibility you or one of your team members could make a mistake. You may need professional indemnity insurance, if you:
- Handle data belonging to a client or business
- Are responsible for a client’s intellectual property
- Advise or guide clients
- Provide professional services and could be challenged on your work
No matter how large or small a business, without professional indemnity cover your financial position could be left vulnerable if a claim is brought against you. Hence, having an adequate insurance plan in place will give you peace of mind that your organization is covered.
What does Professional Indemnity Insurance Cover?
Professional indemnity insurance covers against a wide range of scenarios, including:
- Professional negligence
- Unintentional breach of copyright or confidentiality
- Loss of documents or data
- Claim investigation costs
- Defamation and libel
- Loss of goods or money
Who Can Take the Professional Indemnity Policy?
Professional indemnity insurance can be availed by the following group of professionals:
- Doctors and medical practitioners such as physicians, surgeons, cardiologists, pathologists etc.
- Engineers, architects, contractors and interior decorators
- Medical establishments such as hospitals and nursing homes
- Lawyers, advocates, solicitors and counsels
- Chartered accountants, management consultants and financial accountants
What is Doctors Professional Indemnity Insurance?
Doctors’ Professional Indemnity is an insurance cover specially designed for the professionals to cover them against the liabilities arising out of an error or omissions committed while rendering services to their respective clients.
This policy is meant for registered medical practitioners like physicians, surgeons, cardiologists, pathologists etc. The policy covers the legal liabilities to be paid by the professional for damages to the third party while offering services, the legal cost incurred in defence of the case, subject to a limit. The policy covers only civil liability claims where any claims arising out of criminal or unlawful activities will not be covered.
Professional Indemnity Insurance Inclusions
- Obviously, the scope and nature of cover will vary with the profession. For example, the medical professionals such as physicians, cardiologists, surgeon, and pathologists are given protection against legal liability claim made by the patients due to death or bodily injury. Defence cost is also included where the insured can add other consulting partners or doctors as well as assistants working under them.
- Lower grade employees like peons, housekeeping staffs are also included, if the policy mentions, for errors, mistakes or omissions, negligence while performing a duty. On the other hand, engineers and architects are protected against any legal liability that arises out of any mistake with regards to delivering designs, for providing defective constructional designs, or causing death to the third party.
- For lawyers and accountants, the coverage is given for any legal liability claim due to the monetary losses to clients arising out of omission or mistake made from the insured’s end or by his paid employees. For instance, if someone’s legal representative fails to present a paper regarding the case he is taking up behalf of the client, resulting in the loss of complete case, the attorney could be sued by his client under an omission claim.
Professional Indemnity Insurance Exclusion
The exclusion list of personal indemnity insurance cover includes:
- Intentional damage: To save the business one needs to maintain a good rapport its clients. It’s possible that you may accidentally miss an important meeting or offer some wrong advice. But if the evidence says you knowingly set out to harm the client, the personal indemnity cover that you have wouldn’t accept the claim as intentional damages are excluded for obvious reasons.
- Illegal Acts: This plan doesn’t offer coverage for illegal acts and any lawsuit issued against you for the same. For example, you hack your rival’s software out of desperation, seeing its sky-high growth. Your plan would not provide protection against the lawsuit over cyber damage.
- General Liabilities: Regular accidents that are not part of your work or workplace are not covered by this plan. To cover these, there is ‘General Liability Insurance’.
- The act of Terrorism: Your business may be at stake due to regular terrorist attack or the constant threat of terrorism in Kashmir. But you’ll have to look for some alternates as professional indemnity plan doesn’t include a terrorist attack.
- Contractual Liability: Liability that one might assume from the other through a contract is called Contractual Liability and this is excluded in Professional Indemnity Cover.
- Employment Dispute: Professional Liability Insurance coverage may include the errors or mistakes made by your employees but it doesn’t cover the dispute between you and your employees.
How to Select the Sum Insured?
The sum insured for Professional Indemnity Insurance Policy is decided based on the limit of indemnity. The limit is known as Any One Accident (AOA) Limit and Any One Year (AOY) limit which is fixed for per accident. The insured can choose the ratio of AOA to AOY from the below-given options:
However, the AOA limit, which is the maximum payable amount during a claim, should be decided by taking into consideration of the nature of work of the policyholder and the maximum number of persons that could be affected or maximum property damage that is expected to occur, during an accident. Generally, AOA limit is confined to 25% of the AOY limit.
Whatever the case, the sum insured should be selected in such a manner that it covers any legal compulsion that the insured may face at any point of time.
Professional Indemnity Insurance Claim Process
India only accepts civil liability claims that arise out of the negligence of the policyholder causing injury or death to any other party or causing damage to property that belongs to a third party.
In such cases that can spark into a liability claim, the insurer should be informed immediately. If the insured receives any legal notice or summon, that should be sent to the insurer right away. Further, the company will arrange for the defense of a particular case, whenever required. The insured can use the insurance only if the incident has occurred during the policy tenure and the claim is first made in writing. The insurer will pay the maximum amount including the defense cost, in other words, the chosen AOA limit. With the claim amount or any indemnity paid for an accident, AOY limit goes down. Such claims will be covered up to the total indemnity but not more than the AOY limit.
However, the insurer will not cover you for the claim that occurs as result of intentional non-compliance or contractual liability, mental injury, libel, slander etc.
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Is professional indemnity insurance obligatory?
There is no hard and fast rule that you should buy professional indemnity cover but yes, this protects your business against sudden legal liabilities or lawsuits. So, we suggest one should opt for this cover.
Should I buy professional indemnity insurance?
If you own a business or in a profession with higher risks then yes!
Is there any limit of professional indemnity that I need?
The amount of indemnity can be decided based on your need and the type of business you own.
Who can buy Professional Indemnity cover?
The policy is designed for professionals such as:
Registered medical practitioners like physicians, pathologists, surgeons, cardiologists etc.
1. Medical institutes such as hospitals, nursing homes for their errors or omissions while rendering services
2. Engineers, architects and interior designers
3. Advocates, Lawyers, solicitors and counsellors
4. Chartered accountants, financial accountants, management consultants
What are the exclusions of Professional Indemnity Insurance?
The policy doesn’t cover:
1. Claim arising out of criminal activities
2. Any claim is filed after the insurance policy has expired
3. Regular accidents that are not part of the insured property
4. If the business is at stake of regular terrorism or threat to a terror attack, you’ll have to look for some other option, as Professional Indemnity insurance doesn’t cover a terrorist attack
5. Liability arising out of contractual basis
6. The policy doesn’t cover the dispute between the employer and employee
How to claim Professional Indemnity Insurance?
In case of any event probably giving rise to a liability claim should be intimated to the insurer immediately. In case of any summons, it should be sent to the insurance provider without a delay. The insurer will further arrange for the defence of the case.
The insurer will pay the maximum amount up to the AOA limit under the policy. The Any One Year (AOY) limit will be decreased with the amount of claim paid for any one accident. Any such claims made during the policy tenure will be covered up to the total insurance limit not exceeding the AOY limit.
However, the insurer will not pay for any claim arising out of contractual liability, intentional damage, fines, loss of goodwill, libel, false arrest, mental injury etc.
Is Professional Indemnity Insurance Compulsory?
In India, Professional Indemnity Insurance is not compulsory. However, professionals should consider buying this policy.
What will be the cost of professional indemnity insurance?
The cost of professional indemnity will be based on certain factors such as the nature of work you do, the risk involved, the number of employees you have or the level of cover or sum insured you require. The insurance provider will first assess your situation and will inform the amount of premium to be paid. Sometimes, the cheaper plan may not fully provide sufficient coverage. So, analyse your needs before zeroing down on a particular insurance policy.
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