Why Do I Need Professional Indemnity Insurance?

 

Professional Indemnity Insurance (PI) is required by expat professionals whilst operating their business in Australia.

Professionals are someone who offers services or advice in a specialised field or discipline. The professional is qualified to provide such advice/service usually for a fee/remuneration.

Traditional professionals include accountants, lawyers, insurance brokers, engineers, architects, real estate agents, and consultants. Non-traditional professionals include agricultural consultants, migration consultants, freelance journalists, translators, naturopaths and any business which provides professional services or advice.

Professional Indemnity is designed to protect Insured Professionals from economic loss, sustained by third parties as a result of the performance of the Insured’s professional services and advice.

The (PI) policy provides the Insured cover for Investigation, Defence Costs, and Settlements.

Professional Indemnity can also be known as E&O (Errors and Omissions) or Professional Liability Insurance.

Most PI policies operate on a “claims made and notified” basis. This means a claim must first be made against the Insured and notified to the Insurer during that period of insurance.

Therefore, when the Insured first becomes aware of a claim or circumstances which may give rise to a claim against them, they must notify the Insurer of this event during that period of insurance. The Period of Insurance is always clearly outlined on the policy schedule.

A claim against the Insured includes a verbal notice made against the Insured during the Period of Insurance, as well as a written notice for damages by a third party or civil proceeding.

Below are examples of claims recently received by Insurers we deal with:-

Agricultural Consultant 

The Insured was hired to provide advice to a customer regarding the correct management of their crops. The Insured failed to consider the soil residual herbicide that had been applied to the crops in the prior year and as a result, the crops failed. The client sought reimbursement for loss of income and yield from the Insured.

The Professional Indemnity Insurer appointed lawyers, assessed the loss and payment was made in the amount of $60,000 to the client subject to them signing a deed of release.

Accountant 

A former client made a claim against the Insured regarding negligent advice in regard to making contributions into their Self-Managed Super Funds (SMSF).

The client’s Financial Planner had prepared a Statement of Advice recommending the superannuation contributions, which the Insured approved. As a result, the claimant had to pay $150,000 in excess contributions liability.

The Insured claimed under the PI Policy and commercial settlement was reached between the parties and a deed of release was signed. The payment amount was $99,000.

Land Surveyor and Town Planning/Building Surveyor 

A claim for loss was made against the Insured in regards to providing incorrect advice on the potential sub-division of a property a client of the Insured had purchased.

The Insured was covered under his PI Policy for legal and defense costs in responding to the claim. A settlement payment of $800,000 was made.

The above claims scenarios are evidence of the importance of Professional Indemnity Insurance for any business person who provides professional services and/or advice.

 

Written by: Michael McMahon from Gibson Insurance

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