Practising as a professional in today's financial world can be both exhilarating, and at the same time
risky. Exposure to expensive, time-consuming litigation from disgruntled clients is a real threat. It
is crucial that every professional ensures his or her activities are covered by a professional indemnity
insurance policy.
Professional Indemnity insurance protects a professional from financial loss, injury or damage arising
from a mistake or failure by the professional to exercise the required level of skill. This may mean
that an award is made in favour of a person who suffers a loss, damage or injury. A professional may
also be held to be liable for a mistake even though there was no negligence.
Therefore, if a professional holds themselves out as having a special skill, which can be relied upon by
another, they should consider Professional Indemnity Insurance as crucial.
Who is insured?
All past, present and future (incoming) principals of the insured's business.
Each and every person, business or company listed as an insured on the schedule.
All past, present and future employees.
The insured for any work undertaken by an agent and/or consultant.
Prior companies under which the insured operated.
Entities acquired by mergers and/or acquisition during the period of insurance (interim cover).
Any subsidiary company engaged in the insured's professional business practice created by the
insured during the period of insurance.
Estates, legal representatives or assigns of the (deceased) insured.
The insured's joint venture liability arising out of their own acts, errors and omissions are
automatically covered.
The insured's joint liability in respect of a joint venture (optional cover).
A professional indemnity policy needs to be broad enough to cover the insured for the mistakes or errors
of anyone who has worked for them, whether in the past, present or future, not just services that the
insured has actually provided themselves.
Who is a professional?
Anyone who provides advice and/or services of a skilful character, according to an established discipline,
can be regarded as a 'professional' in a legal sense.
So 'professionals' include not only those who are traditionally viewed as professionals, such as doctors
and lawyers, but also computer consultants, advertising agents, acoustics consultants, trade associations,
fund managers, and so on.
What protection will a professional indemnity policy provide?
A professional indemnity policy aims to shield the professional's assets in the event of a claim, ensuring
that he/she is able to carry on their business. Every policy on the market is different. We can compare
each policy for you.
1. Negligent design/advice
Facts: The insured was the design architect for a new warehouse for a scaffolding hire company. The
insured's design provided for a suspended floor slab and the insured sub-contracted the design of the
slab to an engineer. Because of the weight of the scaffolding in storage, the slab required to be
specially strengthened, but was designed by the engineer at the minimum strength provided in the
building regulations for a warehouse floor slab. When the error was discovered, the slab had to be
re-built at a cost of over $600,000. The owner sued the architect and the engineer. The claim was
compromised for a payment of $600,000, $350,000 paid by the engineer and $250,000 paid by the insurer
on behalf of the architect.
2. Negligent advice
Facts: The insured real estate agent was engaged to sell a town house in a Sydney suburb.
The vendor insisted on a private sale and nominated a high sale price. The agent found several potential
buyers at a lower price, but the vendor rejected their bids, insisting he would not sell below his nominated
price. After some months, the agent found a buyer at that price and the property was sold. Shortly
before settlement, an identical town house in the same development was put up for sale by auction
and sold for $100,000 more.
The vendor threatened to sue the real state agent. The vendor claimed that the agent should have
appreciated that in the heated Sydney property market, the vendor was likely to achieve a better result
by going to auction than through a private sale and should have recommended an auction to the vendor,
notwithstanding the vendor's instruction that he wanted a private sale.
3. Alleged negligent supervision
Facts: The insured was engaged as the project manager of the refurbishment of a double storey office
building, which included laying new carpet on the stairway connecting the office floors, with a metal
strip with rubber insert on the nosing of each stair.
A visitor fell down the stairs and was badly injured. She claimed that the heel of her shoe had caught
on the raised edge of a metal strip which was missing its rubber insert.
The visitor sued the building owner which in turn sued the carpet layer and the insured. The carpet
layer was uninsured and without assets. It was alleged the insured, in conducting an inspection of the
work, should have detected that the metal strip was raised and did not have a rubber insert.
4. Breach of confidentiality
Facts: The insured was a personnel agency. X lodged his resume with the insured and at the same time
disclosed he had a medical condition. The insured sent the resume to prospective employers and disclosed
to them the existence of X's medical condition. X sued the insured, claiming he had not authorised them
to disclose the medical condition.
5. Breach of copyright
Facts: Unknown to the insured, one of its employees had copied and used an overseas company's product
to create a new software system for the insured's range of products. Copyright in the original program
was owned and registered by the overseas company. The new product was then marketed and sold under the
insured's name. The overseas company, after becoming aware that this derivative version was being sold
in the local market, brought a claim against the insured alleging breach of copyright and loss of profits
and reputation.
