What Is Professional Indemnity Insurance?

The simple answer to the question ‘what is professional indemnity insurance’ is that it’s an insurance policy designed to protect professionals in the event that they are sued for negligence.

Of course, being a simple answer, it may well raise a number of further questions in your mind. Not just ‘what is professional indemnity insurance’ but ‘what is a professional’ for example. For the purposes of this type of insurance, the term is generally taken to refer to anyone who, rather than simply following instructions, makes judgements on behalf of a client or offers advice on which a client might rely when making important decisions.

Some years ago, professional indemnity insurance was taken out only by the most established professions – such as doctors, solicitors and accountants – but these days, particularly with the rise of so many more consultancy-type roles, there are literally hundreds of professions for which the protection of professional indemnity insurance would be considered highly advisable.

The second question that follows on from our answer to ‘what is professional indemnity insurance’ is what is meant by negligence. As a professional offering advice to clients or making judgements on their behalf, you owe those clients a legal duty of care. In other words, you are required to act in their best interests (and it should be noted that, in this context, failing to act in the right way can be treated as seriously as acting in the wrong way). If you fail to do so and the client suffers a financial loss, they will have good grounds for taking legal action against you by suing for damages.

Should that happen and you were to lose the case, then you could be liable not just for the full amount of any court-awarded compensation but potentially for both sides’ legal costs. Which could be enough to bankrupt you. And the point should be made that a simple mistake or oversight on your part could be all that it takes to cause a financial loss for the client and a consequent claim against you.

So, what is professional indemnity insurance? It’s the insurance that stands between you and potential financial disaster.