Professional Indemnity Insurance (aka PI Insurance) is a type of cover, often compulsory, for any business or professional engaged in providing advice in exchange for a fee. Most commonly, professional indemnity insurance covers lawyers, doctors, accountants, auditors, architects, engineers, pharmacists and consultants, but can be anyone who provides advice or services according to an established discipline that others rely upon. Without insurance, a claim for compensation as a result of incorrect professional advice can force a business into insolvency.
Professional Indemnity Insurance covers against claims for liabilities owed to a third party (typically a client of the insured) for the loss suffered by that client. The policy indemnifies the professional for the liability owed to the third party for the loss suffered. Professional Indemnity Insurance therefore protects a professional against claims for financial loss, personal injury, and/or property damage that arises from an act, error or omission in the performance of the professional services covered by the policy.
Examples that can be covered include failure to detect fraud when auditing financial statements, unsafe building plans drafted by an architect, incorrect financial advice provided by an investment consultant, preparing an incorrect tax return by an accountant that gives rise to penalties and prosecution by the Australian Taxation Office, and misdiagnosing a medical condition by a doctor that leads to harmful therapy. In all these cases, a potential claim can arise for compensation against the insured.
In any profession, it is possible to unintentionally breach privacy or confidentiality, omit information, make an error of judgement or provide incorrect advice. A simple act, error or omission can lead to a substantial claim. In many professions, obtaining cover for Professional Indemnity Insurance (with certain minimum thresholds and durations) will be a condition of membership of a professional society, effectively meaning that one cannot operate without it.
Even where obtaining Professional Indemnity Insurance is not compulsory, it is still advised to obtain a policy as the legal costs associated with defending any claims can be significant. Court and other legal fees to defend a business are often underestimated, and small businesses might not have the means to defend themselves, even if they are not found liable for damages. Trials can take years, especially with appeals, that rapidly escalate legal fees into six and seven figure sums.
The specific terms of professional indemnity policies vary from insurer to insurer, and within the portfolio of a given insurer, but the underlying expertise issues generally remain the same.
At the bottom of this profile are brief details of a number of the experts that Expert Experts represents. Call our office to discuss your requirements and to obtain an expert submission that suits your needs and budget.
What Expert Evidence
In general, a plaintiff has to establish a loss or injury that has occurred as a result of relying upon the advice of the insured. Experts will be aware of important issues in relation to professional indemnity insurance:
- Duty of Disclosure: Professional Indemnity Insurance is typically offered on a “claims-made” basis, implying that a policy must be in place at the time the business is first made aware of an impending claim or even if the business is aware of the circumstances that could give rise to a claim in the future. This is a legal requirement (s21) of the Insurance Contracts Act. An example is where a financial advisor has left a business after it has been discovered they have been negligent in managing clients’ funds, but before the client has become aware of this. Consequently, professionals have a duty to notify their insurer immediately after becoming aware of a potential claim. If the policy renews without such a disclosure, insurers may deny the claim.
- Insured Names: It is important that all the business entities (including associated trusts, partnerships and service companies) that could be drawn into litigation are noted as insured on the professional indemnity insurance policy.
- Professional Services: It is essential that of the services offered by the business are noted under the policy. This is critical to prevent an insurer seeking to decline a claim.
- Vicarious Liability: To provide clarity, a business should always ensure that the policy covers any potential liability incurred as a result of the actions of consultants, sub-contractors and agents engaged to carry out professional services on behalf of the business.
- Continuity Clause/Date: Policies commonly contain a continuity clause. This means the duration of coverage will usually be limited by the date of the start of the policy. This is an important factor when changing insurers.
For some fields of expertise we have some sample sections of de-identified reports. Please contact our office if you are interested in a sample.
The overall cost of expert opinion depends on the services required. Some of the key factors that affect the cost of advice include:
- The need for a view or inspection of a location
- The quantity of documentary material to be reviewed
- Whether there are reports of other experts to be reviewed and commented on in detail
- Whether there is a need for conferences with the expert either in person or by telephone/Skype