Professional Indemnity is a critical insurance cover for a range of businesses and trades in the design and construction industry, from engineers and surveyors, to carpenters and builders.
However, it is not well understood and often overlooked by many in these fields. These business owners are exposing themselves to potentially crippling costs.
Professional Indemnity, among other things, covers your civil liability to pay compensation to a third party if you are alleged to have breached your ‘professional duty’.
For instance, whether you are a builder or a surveyor, it is your professional duty to provide your clients with expert and accurate advice and services, backed by qualifications and experience.
This policy is designed to cover you if you have unintentionally given inaccurate or incomplete advice, or if you are responsible for an honest mistake that causes a loss to your customers.
To compare, the more common Public and Products Liability insurance policy only covers your business for injuries or damage that you, your employees or your business cause to other people or their property.
An injury or damage need not have occurred to trigger Professional Indemnity.
How does it work?
Imagine you are a builder hired to carry out a series of home renovations, including a new kitchen and a backyard deck.
You provide design advice to the customers and then build the deck according to your specifications. However, after it is completed, you discover that the deck does not comply with building regulations and must be taken down and rebuilt.
In this case, professional indemnity insurance would typically cover the costs associated with deconstructing and rebuilding the deck for the customer. This is because the costs have resulted from your failure to give accurate and complete advice.
It can also cover any legal costs if your customer takes you to court. However, it does not normally cover any fines or penalties.
Meanwhile, you’ve also subcontracted a labourer to install the new kitchen. However, when you come to inspect the kitchen, you find that the wrong bench top and splashback have been fitted.
This may well be a breach of your contractual liability, because you are responsible to ensure the work is carried out correctly as set out in the contract arrangements.
Professional Indemnity could then cover you for the cost to remove the incorrect bench and splashback and replace them with the correct ones.
These are honest mistakes, but they could have serious implications for your business.
Professional Indemnity insurance can help you fix these honest mistakes, while minimising the financial stress it places on your business.
Content Written by Mr Leigh Smith, Senior Leader, Commercial Portfolio, GIO Business Insurance
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