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Professional Indemnity Insurance

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Professional Indemnity Insurance

Professional indemnity insurance protects professionals and businesses from financial liabilities resulting from claims of negligence, errors, or omissions in their services. It includes coverage for legal expenses and settlements in cases where clients assert that the professional’s work detrimentally impacted their financial standing or reputation.

What is the Importance of Professional Indemnity Insurance?

The importance of a Professional Indemnity Insurance Policy lies in the following reasons:

Ensures Coverage for Businesses of All Sizes

Whether operating a small startup or a large corporation, a professional indemnity insurance policy provides customized coverage tailored to the specific needs of your business, helping to mitigate the risks associated with professional services.

Protects your Financial Position if a Claim is Made

Should a claim or legal action be initiated against your business, professional indemnity insurance offers financial protection by covering legal expenses, settlement costs, or awarded damages.

Offers Peace of Mind Knowing your organization is Protected

Having professional indemnity insurance in place provides peace of mind, ensuring that your organization is shielded against potential liabilities and unforeseen circumstances resulting from professional errors or negligence. This enables you to concentrate on your work without the constant concern of potential legal or financial consequences.

Irrespective of your experience in your profession, the possibility of mistakes remains. In such cases, a professional indemnity insurance policy becomes important. You might require this insurance if you are:

Providing Advice or Guidance to Clients

Professionals offering advice or guidance are exposed to the possibility of errors or omissions that could result in financial harm to clients. The professional indemnity insurance policy deals with claims stemming from such circumstances.

Vulnerability to Claims Challenging Professional Work

Professionals encounter the risk of facing claims questioning the quality or efficacy of their services. To mitigate this risk, professional indemnity insurance offers protection against financial losses arising from legal actions initiated by dissatisfied clients.

Handling Clients or Business Data

Businesses that handle sensitive client or business data face the risk of data breaches or loss. Professional indemnity insurance can help with the money problems that come from making mistakes with data.

What is covered by Professional Indemnity Insurance?

A professional indemnity insurance policy includes coverage for the following:

  • Costs and expenses, including defense costs and legal costs, are covered.
  • Unintentional breach of contract is covered.
  • Unintentional breach of confidentiality is covered.
  • Defamation including Libel and Slander
  • Fraud or dishonesty of employees is covered.
  • Violation of intellectual property and copyright is included.
  • Loss of documents and data is covered

What is not covered by Professional Indemnity Insurance?

Followings are excluded from the Professional Indemnity Insurance:

Known or Reasonably Foreseeable Situations or Incidents

Situations or incidents that the insured knew about or could have reasonably foreseen at the inception of the professional liability insurance policy are not covered.

Previously Reported Situations or Incidents

If a situation or problem was already reported under another insurance before this policy started, it won't be covered by professional indemnity insurance.

War, Invasion, Acts of Foreign Enemies

The professional liability insurance policy does not cover losses arising from war, invasion, acts of foreign enemies, civil unrest, government actions, or related conditions.

Losses from Specific Substances & Disease

Professional indemnity insurance does not provide coverage for losses resulting from substances like asbestiform talc, asbestos, Diethylstilboestrol (DES), dioxin, urea formaldehyde, or acquired immune deficiency syndrome (AIDS).

Fines & Penalties

The professional liability insurance policy does not extend coverage to fines, penalties (civil, criminal, or contractual), punitive damages, exemplary damages, treble damages, or any other damages surpassing compensatory damages or deemed uninsurable by the law of the land.

Losses due to Prohibited Acts or Omissions

The policy excludes coverage for losses stemming from dishonest, fraudulent, criminal, or malicious acts or omissions. It also does not cover losses arising from violations of laws or ordinances, nor does it cover services rendered while under the influence of intoxicants or narcotics.

Insolvency or Bankruptcy

Any claim arising from the insolvency or bankruptcy of the insured is excluded from coverage under professional liability insurance.

General Liabilities

This plan excludes coverage for regular accidents that happen outside of your work or workplace. General Liability Insurance is necessary for coverage in such instances.

Losses resulting either directly or indirectly from:

    • Ionizing radiations or contamination caused by radioactivity originating from nuclear fuel or nuclear waste are not covered.
    • This insurance doesn’t cover any damages caused by dangerous materials like radiation, toxins, explosives, or nuclear parts.
    • Nuclear reactors, nuclear power stations, plants, premises, or facilities engaged in nuclear energy production or in the production, storage, or handling of nuclear fuel or waste are not covered.
    • Any other premises or facilities covered by a local nuclear pool or association’s insurance are not covered.

Disclaimer: To learn about the exclusions in detail, please review the policy wording of the insurance product.

Tail Reporting Coverage

Tail reporting cover, also called extended reporting endorsements cover, is an extra insurance option that people can buy with professional indemnity insurance. It covers incidents that happened while the insurance was active but weren’t reported until after the policy ended.

Extended coverage may be provided by certain insurance companies if the insurance policy is not renewed during that period. Naturally, this extended coverage incurs a premium, which must be paid if the tail reporting coverage is utilized for claims.

Professional Indemnity Insurance Policy - Maximum Coverage Amount

Let us now inform you about the Limit of Indemnity in the professional liability insurance policy:

  • The sum insured in professional indemnity insurance is referred to as the Limit of Indemnity.
  • This limit is established per accident and per policy period.
  • It is denoted as Any One Accident (AOA) limit and Any One Year (AOY) limit, respectively.
  • The ratio of AOA limit to AOY limit is selectable.
  • The AOA limit, which represents the maximum amount payable for each accident, must be pre-established.

Who can buy Professional Indemnity Insurance?

Professional indemnity or Errors and Omission insurance can be obtained by individuals or companies offering professional services. Below is a table listing individuals and entities eligible to purchase a professional indemnity insurance policy:

Individual Entities
Personal Indemnity for Doctors Personal Indemnity for IT/ITES Companies
Personal Indemnity for Architects Personal Indemnity for e-commerce
Personal Indemnity for Lawyers Personal Indemnity for Fintech
Personal Indemnity for Chartered Accountants Personal Indemnity for Manufacturing Company
Personal Indemnity for Contractors Personal Indemnity for Banks
Personal Indemnity for Management Consultants Personal Indemnity for Hospitals, etc.
Personal Indemnity for Interior Decorators, etc.

Considerations When Buying Professional Indemnity Insurance

Here are certain factors to bear in mind when purchasing professional liability insurance:

Decide on the Right Sum Insured

Choose an appropriate sum insured based on the nature and magnitude of risks associated with your business, ensuring adequate coverage for potential claims.

Be Transparent with Information

Full disclosure is essential when acquiring insurance. Furnish all pertinent details, regardless of how trivial they may appear, to prevent claim denial and guarantee the efficacy of the insurance policy.

Align insurance features with business needs

Ensure that the features of the professional liability insurance policy align with your business requirements. If your business deals with international clients, it is advisable to opt for a policy that offers coverage beyond domestic borders to address your specific needs.

How does Professional Indemnity Insurance work?

Here is how it works:

  • Claims may arise due to your or your employee’s negligence, errors, etc., while providing professional services to clients, resulting in substantial financial losses to your business.
  • Professional indemnity coverage is primarily offered on a claims-made basis, meaning it generally covers claims pertaining to incidents that occurred or were discovered during the policy period.

Here’s a condition:

  • Claims submitted for an incident that happened prior to the retroactive date of the policy coverage may not be covered by the insurance company.

What is the Claim Procedure of Professional Indemnity Insurance?

  • Step 1: Inform the MyPolicyExpress claim handler about the incident.
  • Step 2: You will receive a claim intimation format from the claim handler, which you are required to fill out and submit. You will be asked to furnish the following details:
    • Policy Number
    • Insurer Name
    • Name of Policyholder
    • Policyholder’s Address
    • Incident Date
    • Detail of the Incident
    • Estimated Loss Amount
    • Location where the incident occurred
    • Name and contact information of the individual at the incident location.
  • Step 3: After you send these details to the claim handler, they will forward them to the insurance company. Once the insurance company reviews the information you provided, they will register the claim and assign a claim reference number.
  • Step 4: After generating the claim reference number, the insurance company will either assign a surveyor or provide a List of Requirements (LOR) to continue with the claim process.
  • Step 5: The insurance company will furnish a claim form for you to complete, sign, and affix with the company seal, after which you should submit it along with the LOR. (For professionals, if they possess a seal, they may use it to stamp the claim form).
    • Below is the list of documents needed for KYC:
      • PAN Card
      • GST Registration Certificate
      • Address proof of the location of the incident
      • Aadhar Card
      • Electricity Bill
        Disclaimer: These documents are fundamental requirements. Should there be any additional necessities or Letters of Requirement (LOR), the insurance company will notify the Policybazaar claim handler. Subsequently, the handler will assist you in gathering and submitting these documents to the insurance company.
    • Step 6: Whether a team of surveyors will be dispatched to the site of the incident to verify its validity depends on the insurance company.
    • Step 7: In the case of an ongoing court case, provide the insurance company with all pertinent details concerning the legal proceedings.
    • Step 8: After the conclusion of the court case and the judge determines the compensation amount in the final verdict, the insurance company is obligated to disburse that amount to the insured according to the policy terms and conditions.
      • Disclaimer: The coverage for lawyer’s fees is constrained by a particular percentage of the sum insured, as outlined in the insurance policy. For example, if the sum insured is Rs. 100 and the coverage for lawyer’s fees is capped at 25% of the sum insured, the insured will be entitled to lawyer’s fees coverage up to Rs. 25, with no exceeding amount. This is contingent upon the terms and conditions specified in the insurance policy.
        Also, there are situations where the insurance company may opt to assign a lawyer to assist the insured. However, if the insured has already engaged their own lawyer, the coverage will be administered according to the condition mentioned above.

What do you mean by Retroactive Date in Professional Indemnity Insurance?

The retroactive date denotes the initial date on which the insured purchased the policy and continuously renewed it without any lapse in coverage.

Transferring the Retroactive Date from the Old Insurer to the New One

Transferring the retroactive date from the old insurer to the new one involves the new insurer assuming responsibility for covering any potential claims arising from the policy period with the previous insurer.

Condition: There must not be any interval between the expiration of the old policy and the commencement of the new one.

What is Professional Indemnity Insurance for Doctors?

Professional indemnity insurance for doctors offers specialized protection against claims alleging negligence, errors, or omissions in their services. It shields doctors from financial losses and enables them to concentrate on delivering quality care without continual worries about litigation. This insurance encompasses legal defense, settlements, and damages, up to the policy limit.