What is professional indemnity insurance and who needs it?uestion 1
Professional indemnity insurance (PI) protects businesses that provide advice, designs, or professional services. It covers legal costs and compensation if a client claims that your work caused them financial loss due to negligence, an error, or misleading advice. It’s essential for consultants, designers, IT providers, accountants, and other knowledge-based professionals. Many regulatory bodies and client contracts require you to have PI in place. Even if claims are unfounded, legal defence costs can be significant. PI insurance is about safeguarding your business reputation and finances. Whether you’re self-employed or running a limited company, if you give recommendations, draft documents, or provide technical services, this type of cover ensures you’re protected if something goes wrong. Without it, a single claim could be financially devastating.
How much cover do I need for professional indemnity?
The level of professional indemnity cover depends on your industry, contract values, and potential impact of an error. Some professions have regulatory minimums—for example, architects and accountants must carry specific limits set by their governing bodies. Common cover amounts range from £250,000 to £5 million. If you work with high-value contracts, government bodies, or public sector clients, you may be required to carry £2 million or more. Consider the maximum financial loss your mistake could cause a client—not just the cost of correcting the error, but also lost income or reputational harm they might suffer. A broker will help assess your exposure and recommend a suitable limit, ensuring you don’t overpay for unnecessary cover while staying fully protected. It’s also wise to review your cover annually as your business grows.
Does PI insurance cover previous work or contracts?
Yes—if your policy includes retroactive cover, it can protect you against claims made about work you completed before the policy was taken out. This is especially important for consultants or freelancers who are switching insurers or buying cover for the first time. However, you must declare the date from which you want the policy to apply (known as the retroactive date). Claims must still be made during the active policy period, as professional indemnity is usually a claims-made policy. If your retroactive date is too recent, you could be left exposed for past work. Always ensure your retroactive cover matches the start of your trading or contract history to avoid gaps. A broker can help you set this up correctly and negotiate with insurers to include prior work where necessary.
What does legal expenses insurance cover?
Legal expenses insurance helps cover the cost of legal representation and advice in the event of a business dispute. It can cover:
Employment tribunals
Contract disputes with clients or suppliers
Tax investigations
Criminal defence (for health and safety or data protection breaches)
Debt recovery services
It’s often available as an optional add-on to liability policies or packaged in business insurance bundles. Legal expenses cover typically includes access to legal helplines and template documents, which can prevent problems before they escalate. While it doesn’t cover intentional wrongdoing or fines, it’s a cost-effective way to protect your business against unexpected legal costs. It’s particularly useful for small businesses that don’t have in-house legal departments. A broker can help you understand what’s included and recommend a policy based on your sector and risk profile.
Can I get insurance for breach of contract claims?
Yes, professional indemnity insurance often includes cover for unintentional breach of contract, especially when it relates to the delivery of professional services. This can apply if a client alleges you didn’t deliver work as agreed, missed deadlines, or failed to meet a particular specification. However, not all contract breaches are covered—particularly those involving deliberate non-performance or disputes over pricing. If your business deals with complex or high-value contracts, it’s vital to review your policy wording to ensure contract-related disputes are included. You may also benefit from legal expenses insurance, which can help you defend or pursue claims involving contract disagreements. A broker can help ensure you’re covered for the most common risks associated with your industry and contract terms.
Do I need legal cover if I already have liability insurance?
Yes, liability insurance (like public or employer’s liability) covers third-party injury, property damage, or employee claims—but it doesn’t typically cover legal disputes that arise from contracts, regulations, or HMRC investigations. That’s where legal expenses insurance comes in. It provides support for employment issues, supplier disputes, debt collection, or defence against prosecutions. Having both types of cover gives you well-rounded protection. For example, if an employee brings a tribunal case, liability insurance might cover compensation, but legal expenses cover helps pay for your defence. Legal cover is relatively inexpensive and offers peace of mind. Even a simple legal matter can cost thousands in solicitor fees, so having protection in place is smart risk management—especially for SMEs without legal departments.
Is reputational damage included in PI policies?
Most professional indemnity (PI) policies do not explicitly cover general reputational damage, but they may cover defamation, libel, or slander—for example, if a client accuses you of making a harmful statement that damages their reputation. PI also protects your own reputation by funding legal defence against unfounded claims. If your work leads to a significant error or dispute, insurers may cover the cost of hiring crisis PR consultants or issuing corrections, depending on your policy terms. If protecting your brand is a major concern, some specialist providers offer reputation management extensions or recommend pairing PI with cyber insurance and legal expenses cover. These can help if the damage stems from data breaches, online reviews, or adverse media. It’s worth discussing with your broker to understand the reputational risks your business faces and what protection is available.
Can I get retroactive cover for past work?
Yes, many professional indemnity policies offer retroactive cover, which applies to services you provided before the start date of your current policy. You’ll need to declare your desired retroactive date—typically the date you began trading or your previous PI policy started. Claims must still be made while the policy is active. Retroactive cover is essential if you’re switching insurers or if you’ve never had PI before. Without it, you may not be covered for historic errors or omissions that are only discovered later. Some insurers automatically provide unlimited retroactive cover, while others charge extra or limit how far back you can go. It’s critical to keep continuous cover in place, as a break in your policy could leave gaps in protection. Speak to your broker to ensure your policy reflects your full work history.
How are legal costs handled if I’m taken to court?
If you’re taken to court over a covered claim—such as negligence, defamation, or a contract dispute—your professional indemnity or legal expenses policy will typically cover the cost of your legal defence. This includes solicitor fees, court costs, and potentially expert witness expenses. Most insurers have a panel of approved legal firms or claims handlers who manage the process. You’ll need to notify your insurer as soon as legal action is threatened or served and avoid admitting fault before they review the claim. In most cases, your insurer will appoint legal representation and liaise with you throughout. If the court rules in favour of the claimant, your policy may also cover the awarded damages, depending on your cover limits. A broker helps guide you through each step, ensuring deadlines are met and paperwork is handled correctly to maximise your protection.
