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What is Professional Indemnity insurance?

Professional Indemnity (PI) insurance is the main insurance required to be contractually held by limited company contractors. It provides cover for the cost of professional legal representation in defending a claim and any awards/compensation made against the company in respect of errors and omissions resulting from the business providing its professional services.

Contractors without professional indemnity insurance will almost certainly find themselves in breach of the contractual terms of their contract, as almost all engagements these days require the contractors business to hold PI, and with a minimum cover level of £1m is in place. Contractors are often (incorrectly) under the impression that they’re covered by the professional indemnity insurance of whichever recruitment agency they are currently providing their services through. However, in almost all cases, they aren’t. This leaves a contractor, and their business, open to personally covering the costly legal fees for any claims that arise – something that can run in to the hundreds of thousands of pounds. In short, professional indemnity insurance is essential for contractors. 

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Why choose a Roots Professional Indemnity Insurance policy? 

Our Professional Indemnity (PI) insurance is one of the best, if not the best on the market for the professions we cover and the prices we charge. Premiums start at just £150.00 (inclusive of Insurance Premium Tax) for £1m of cover, which can be extended to include retroactive cover for previous work, and/or have the excess payable in the event of a claim reduced down from £500 to £0 – for just a small extra amount. Our policies are underwritten by some of the largest insurers in the world and we have claims handled by top UK legal firms, meaning our professional indemnity insurance offering is as good as they come. 

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PI Policy Benefits

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Includes a FREE IR35 Status Review

We’ll review your contract from an IR35 perspective and provide an overall inside/outside IR35 status opinion, including a comprehensive list of essential changes (if any need to be made). We’ll also highlight the full list of insurances required to be held to meet your contractual requirements.

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Expert Advice

We’ve been involved in the contractor insurance marketplace for over a decade, working at senior manager and board level at some of the most well known companies. Our highly experienced staff have personally reviewed thousands of contracts from an IR35 status perspective.

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Tailored for Contractors

All of our insurances and IR35 status reviews are designed to the exact needs of contractors, they’re not generic off-the-shelf policies. We back it up with highly experienced staff who are able to answer any queries may have, all from our Loughborough office in the heart of the Midlands.

Professional Indemnity Insurance Policy Features

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Defence Costs

Cover for the legal costs and expenses incurred in relation to the investigation and defence of a claim, including any appeal issued in connection with it. Compensation is covered separately, giving you double the coverage.

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Compensation

Cover for damages and awards which your business is legally liable to pay as compensation arising from any negligent act, error or omission that emanates from your business providing its professional services.

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Loss of Documents

Cover for the repair, replacement and/or reconstitution of documents which you have unintentionally destroyed, damaged, lost or mislaid during the provision of your professional services.

Frequently Asked Professional Indemnity Insurance Questions

 

Who needs professional indemnity insurance? 

Anyone who provides advice, designs or professional services is likely to be contractually required to have PI in place. Incorrect or erroneous advice or omissions can be a costly error, with large financial ramifications leading to claims being made by the end client or a third party, who seek to get the issue fixed and with you footing the bill. 

How does professional indemnity insurance assist my business? 

PI assists your business by protecting it from the financial costs of both the legal representation and compensation associated with negligence such as errors and omissions during the provision of your services. These costs can often run into the hundreds of thousands of pounds, and a legal case can be brought on just an allegation – even if you have done nothing wrong. Come what may you would still have to meet the costs in defending yourself. By holding PI, you are providing the end client with the reassurance that you’re covered in the unlikely event of the worst happening, meeting the contractual requirement for the engagement, and increasing the possibility of you landing the contract as a result. 

Does holding professional indemnity insurance help me with my IR35 position? 

As a business, taking out PI will aid and improve your IR35 position. Insuring yourself against professional indemnity claims acts as a clear indicator that you are a genuine business that takes sole financial responsibility for rectifying errors or omissions, as opposed to an employee who would be covered by their employer. 

What level of cover do I need? 

Typically, a £1m (£1,000,000) level of cover is required, with other common limits being £2m and £5m. Limits do range from £50,000 up to £5,000,000, but ultimately it should be no less than the contractual requirement placed upon your business for the engagement or the maximum financial loss your client could suffer due to a mistake you make. If the level of cover taken out is insufficient, then your business will be liable for the remaining amount, which can be significant. More often than not, the recruitment agency will specify the limit of indemnity required via the contract you have agreed with them.

What is ‘retroactive cover’ and do I need it? 

This covers your work before the start of the current period of insurance – providing you are not aware of any issues with your work that could lead to a claim being made against you. The point of retroactive cover is that the current policy will only cover claims that both arise during the current policy period and are notified during that period. If an event that leads to a claim being made occurs before the policy start date date, but is notified during the current policy period, without retroactive cover being in place, the claim will not be valid. To take out retroactive cover there must have been uninterrupted insurance cover in place up to that point. Retroactive cover is available for all our trades, where it can be purchased for an additional premium at the point of sale. 

Should I cancel my professional indemnity cover when my contract finishes? 

This is a common mistake made contractors. By cancelling the insurance when the engagement ends – say maybe in the knowledge that you are taking a well-earned month-long holiday in between engagements – you risk putting your company in the position of being uninsured at the point a claim is made. A PI insurance policy is what is known as a ‘claims made’ policy, meaning that for a claim to be valid both the incident and notification must be made during the policy period. In short, you need to have the insurance in place when you receive notification of the claim being made against you – cancelling the policy early puts you at risk of being uninsured when a claim is made. 

I work on multiple engagements at once, do I need professional indemnity insurance for each? 

If you are working in very similar roles across your clients, then you should be ok with the one policy. However, you will need to check the policy documents with your broker to ensure that this is the case – different roles can result in different policies being issued, and a different price being charged. Our policies do provide for this, on the condition that you’re doing the same job role. In all cases it is recommended to check that you’re fully covered before commencing the engagement. 

I’ve been asked to swap roles on my engagement, am I still covered by my professional indemnity insurance? 

The same answer as above applies here: if you’re working in very similar roles across your clients, you should be ok. However, you will need to check the policy documents with your broker to ensure that you’re sufficiently covered. 

Am I covered by professional indemnity insurance for work I do all over the world? 

Unfortunately not. Most PI insurances provide cover on a worldwide basis, excluding North America. If you take up a contract with an end client operating in North America, then you will need to ensure you have a PI insurance policy that specifically extends to that region or take out a separate policy specific to that region. 

Can you provide some examples of professional indemnity claims? 

Examples of what PI insurance can cover includes:

  • A software programmer’s coding results in unexpected downtime on the main system, taking it wholly offline and with a large financial cost to the end client.
  • A management consultant’s recommendations on costs savings and efficiencies on a project actually increase the costs incurred by the end client.

How do I make a professional indemnity claim? 

If you do receive the dreaded letter or call from the end client or a solicitor alleging professional negligence against your company, don’t panic. Upon taking out your insurance, you will have been issued with a policy wording and a policy certificate. Within these documents will be clearly highlighted sections on how to make a claim, including contact details and the next steps. Remember, the sooner you let your insurer know of a claim the better – if in doubt, contact them and they can advise you what to do. Visit our claims page to ascertain the contact details of whom to notify a claim to. 

What can I do to minimise the chances of a professional indemnity claim occurring? 

There are numerous best practices that can assist you in risk managing down and minimising the chances of a claim occurring, the best being:

  • Make sure you have an active policy in place, don’t leave yourself uninsured!
  • Read and understand your contract in full, ensuring you retain copies of them
  • Ensure before taking up a contract you are capable of delivering the required end result
  • Get sign off on the completion of each milestone on the project.
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