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Indemnity against something usually means that one has obtained security against that action, protecting oneself from any related circumstance. When it comes to insurance, indemnity specifically refers to the compensation that is made when an insurance policy is paid out. Therefore, the underlying principle of Professional Indemnity (PI) insurance is to protect the insured party from any loss that may be incurred and to restore them to a similar financial state that they were in before the loss arose.
While life insurance, for example, pays a predetermined amount, providers of Professional Indemnity insurance are very careful to insure only up to the actual limit of the potential loss.
Professional Indemnity insurance is usually acquired by business professionals who deal in dispensing professional advice. When a business or an individual is consulted for their expert opinion then Professional Indemnity insurance will ensure that they are protected and equipped to deal with any legal action that may be brought against them as a result of their professional opinion or advice. The Professional Indemnity Policyholder is indemnified against losses or other legal action incurred as a result of their negligent act, error or omission. In addition to this, most PI policies will allow for the recovery of any legal costs that are incurred as a result of the claim.
In providing a professional service to a client there is the possibility that the client may suffer some kind of a loss as a result of this service or advice. It is in such cases that Professional Indemnity insurance will allow the professional to compensate the client for the client’s loss, while ensuring that the professional’s financial state has not been diminished as a result of the claim brought against him.
While most Professional Indemnity policies will generally cover a Breach of Duty, some policies will offer additional protection against Civil Liability, such as a breach of contract, libel and slander. Where libel and slander are both referred to as defamation, libel is the type that has a permanent record, and is usually presented in a written form. This may be in the form of a newspaper, an email, a website article, a letter or even a picture. Slander is defamation that has no permanent record and is usually made in a verbal form or may even be regarded as a hand gesture or some similar action.
While most business professionals who operate by providing advice to their clients will obtain Professional Indemnity insurance, there are two categories of businesses that purchase PI: voluntary and involuntary. Those professionals who obtain PI Insurance involuntarily are required to do so by law. The following industries typically make use of Professional Indemnity cover:
More specifically, professionals such as architects, mortgage intermediaries, insurance brokers, and advertising and public relations agencies are encouraged to take out Professional Indemnity insurance policies. While it is not required by law, it is likely that damages sought in these types of industries may amount to large sums and could potentially damage the business.