Why buy Professional Indemnity

The accountability of professional entities underpins the efficacy of their conduct and advice and the sanctity of reliance on their service. This is a thread that runs through all business that hinges in part or whole on service and advisory exposures. Design or third party liability is inherent in many types of businesses and services that may not consider themselves a profession, joint and several liability can bring a party into a claim where the principal party is.

Apart from mainstream professionals that are subject to codes of professional ethics and conduct defined by their professional bodies that set rules and regulations that they operate under, but also by law and duty of care principles. Third parties who rely on the advice and service of the professional require recourse against the professional in event of errors and omissions that the professional may incur. This may not just mean the direct consequences of the actions and proffered advice that will impact on the third party relying on the professional , but the omissions and absence of necessary advice or action that the professional is obligated to provide.

Without the cover there would be a limited mechanism of recourse against the professional which puts the consumer of services in a precarious position in the event of an error or omission. This has a direct business effect on the professional, and whether their consumer will buy their services, as against a supplier who does have the cover. The consumer wants to know that should there be a failure, or short fall in services, there is a requisite transfer of risk that will underpin in the business interest.

A key factor which draws in the professional exposure is joint and several liabilities where there are a number of parties involved with a project and different contracts are in play between the parties. This is particularly demonstrated in construction projects that involve multiple parties performing different roles. Often it is the fault of a less pivotable party such as a subcontractor for specialist services that cause the loss to the third party end consumer, but the action against the main contractor or architect bears the first line of defence and related costs, even if they have a small percentage of causal  fault if any.

Costs of action can be large, and are often the majority of the claim quantum incurred over long periods of dispute. Even if the claim is defended successfully and there is no professional fault there may still be large costs that are not compensated following an action. The ability to field onerous defence costs in itself is a prime justification for policy purchase as this can have a heavy cash flow penalty on a business.