The real value of professional indemnity insurance

By: Nick Green

Date: 1 March 2012

The best way to show you why having professional indemnity insurance is worthwhile is to tell you about how it’s helped real people in real-life situations. In each example, our client didn’t make an obvious mistake. They were simply doing what they usually do best, trying to help and act professionally.

Claim 1: Here’s the proof…

Our client, Jim, runs a successful design agency. He had to produce his biggest client’s annual report – as he had done for 16 years. The project progressed well. Just one minor thing – the CEO had spotted the finance director’s name twice in the “With thanks to…” list.

Jim corrected the final proof and sent the document off to print. As previously, the CEO would visit the printer and check the first sheets coming off the press to ensure the colours were right, and the images looked good.

Some days later, as he waited to drop some sample copies off to his client, Jim realised with dread that the final text changes had not saved. Jim called his client. Quite reasonably, the CEO wanted his reports reprinted, but who was going to pay? It was partly the CEO’s responsibility to sign-off the proofs at the printers.

Faced with a crippling reprint cost, Jim called us to see if his professional indemnity insurance could help. It could. And soon we received the information we needed to get the claim started. The only issue was who would settle the £14,000 reprint bill.

The insurer suggested that the client bore some responsibility, and between them and us, we negotiated a satisfactory outcome. Within days, a cheque for £9,000, representing Jim’s agreed liability, was sent. The client got their corrected report in time for the AGM and Jim kept his client.

Claim 2: Thankless task

Architectural technician Jane was asked to design an extension for her mum’s friend who was losing her mobility and needed a ground floor bedroom adding to her home. Delighted with the plans, the customer asked if Jane knew of a good builder. She recommended Honest John, a local tradesman with a good reputation, and her client accepted his quote.

Despite chasing her outstanding design fees, six months later Jane still hadn’t heard from her client, until a letter from the lady’s solicitors arrived, detailing a claim for negligent advice and a breach of duty of care. Honest John had taken payment, started the work, but then scarpered. The claim was for the £25,000 outlay, plus £20,000 for remedial works and inconvenience.

Our advice was clear. As a professional making a recommendation, Jane had a duty of care to make sure her recommendation was sound. Because her recommendation had run off with her client’s money, there was a case to answer.

This innocent error was covered by the policy. The insurer negotiated a settlement of £35,000 with the lady’s solicitors. Jane renewed her policy – which, despite the claim, went up by less than £10 per month.

Claim 3: Numbers up

Our final tale of woe comes from this client – an accountant, who explains what it feels like to be on the receiving end of a professional indemnity claim. 

“At first, I was too ashamed to contact my broker. How could I confess to small errors that resulted in a compensation claim for £6,000? Thankfully, the broker was sympathetic. They asked for the story from start to finish, accompanied by copies of letters and emails communicating with my client. They said they would come back to me once they had spoken to my insurer.

“When I heard I was covered, I was so relieved. I received guidance on how to write to my client, requesting details of the charges they had incurred, so the claim could be assessed properly. The clients had called in another accountant to correct the issue, and they had charged extra fees for their time. The insurer proposed a substantially lower figure than that demanded, and I was shocked when my client agreed to the offer.

“The process took less than three weeks from my first call to sort out. I still find it hard to believe I made such a fuss about getting on the phone to my broker! I had always considered indemnity insurance to be a bit of a luxury, and I never really appreciated what it could protect me against – but now I reckon it’s a business essential.”

Nick Green of insurance broker PolicyBee

What does the * mean?

If a link has a * this means it is an affiliate link. To find out more, see our FAQs.