Professional indemnity insurance

The stakes are high when your company provides professional services to clients. Even a small work mistake could cost you a lot of money and damage your reputation.

If one of your clients believes they lost money because of your work or advice, they could hold you liable and sue you for the losses. If you don’t have the correct business insurance coverage, you’ll have to foot the legal expenses on your own.

You need professional indemnity insurance (PI insurance).

You may be familiar with this insurance policy’s other names – errors and omissions insurance (E&O) and professional liability insurance.

A professional indemnity policy covers lawsuits over the quality and accuracy of your work. Here are a few examples for technology companies and consultants, but similar scenarios apply across industries:

A web development firm builds a pre-order form for a video game publisher ahead of its newest release. The form breaks as soon as pre-orders begin, frustrating customers and costing the publisher valuable pre-orders. The game publisher sues the developer for its losses.

An IT consultant recommends database software to a financial services company. The client invests in the program and spends a lot of time migrating all of their data into it. The client soon realizes that the tool is far more advanced than what their business needs. They sue the consultant for recommending a product that’s costing them excess time and money.

A data science company hires an intern to organize data for analysis. The intern forgets to include some data, leading to an incomplete analysis and faulty recommendations. The client isn’t happy and sues the company for breach of duty.

A retailer hires an app developer to build a shopping app ahead of the holiday shopping season. The developer falls behind and doesn’t deliver the final product until early December, causing the retailer to miss Black Friday and Cyber Monday. The retailer files a lawsuit against the developer to recover their lost profits.

A call center hires an IT training company to lead quarterly training sessions for new hires. When a trainer doesn’t show up for a session, the call center is left with a class of new employees who aren’t properly trained. The client sues the training company for breaking their agreement to come every quarter.

While professional indemnity insurance covers you for claims over the quality of your work, it doesn't cover every risk your business could face. A professional indemnity policy won't cover:

• Employee injuries. Workers' compensation insurance covers medical bills from work-related injuries and illnesses. Most policies include employer’s liability insurance to protect against related legal fees.
• Third-party damages. Commercial general liability insurance handles the costs of legal action if someone outside your company blames you for bodily injury or property damage.
• Business property damage. You'll need either commercial property insurance or a business owner’s policy to cover costs of repairing or replacing damaged property.
• Employee theft. Fidelity bonds, also called employee dishonesty bonds or commercial crime insurance, will reimburse your client if one of your employees steals data, intellectual property, or physical property from them.

A traditional professional indemnity insurance policy doesn’t cover cyber liability risks, which almost every tech company faces. Many IT businesses buy technology errors and omissions insurance (tech E&O) to secure this coverage.

Tech E&O bundles professional indemnity insurance with cyber liability insurance. This policy pays for legal expenses and other recovery costs if a data breach or cyberattack affects your company or your clients.

A tech E&O policy comes with two types of cyber liability coverage:

• First-party cyber liability insurance covers you if there’s a data breach on your own system.
• Third-party cyber liability insurance protects you when there’s a data breach on a client’s system that you worked on.

If a client sues you for errors or omissions in your work, a professional indemnity insurance policy can cover all your legal costs, including:

• Lawyer’s fees
• Court costs
• Settlements
• Judgments
• Fines

Technology errors and omissions coverage will also pay for expenses related to a data breach, including:

• Notifying customers about the data breach
• Credit and fraud monitoring for affected customers
• Investigations into the source of the breach
• Public relations and reputation management
• Ransom demands from a cybercriminal who is holding data hostage
• Costs associated with regulatory investigations

If your business provides services or you make your living by offering professional advice to others, then you should consider professional indemnity insurance.

While it’s not a legal requirement, many clients or landlords will want you to have indemnity insurance coverage before they’ll sign a contract with you.

Large and small businesses are both equally at risk since it takes only one mistake from either you or an employee to put your entire business at risk. Even if you’re not to blame for a client’s financial loss, defending yourself against those claims can cost your company an incredible amount of time and money.

You could even be at risk years after working with a client if you recommend a product that either crashes or suffers a data breach, exposing the client’s (or their customers’) personal information.

Because professional indemnity insurance is a claims-made policy, make sure to keep this policy active once you buy it. You’re only protected if your policy is active both at the time of the incident and the time when a claim is filed. You can set a retroactive date to cover your past work.

The cost of professional indemnity insurance varies from business to business. Most tech companies buy technology E&O coverage, which costs about $60 per month.

You’ll find that a few factors make a big difference in how much you’ll pay for errors and omissions coverage. Those factors include:

• Coverage amount. Most TechInsurance customers opt for a policy with a $1 million per-occurrence limit and a $1 million aggregate limit. The per-occurrence limit is the maximum your insurer will pay on a single claim. The aggregate limit is the maximum your insurer will pay during the policy period, usually one year.
• Policy deductible. The lower your deductible, the higher your premium.
• Past coverage. Previous professional indemnity claims will often lead to a higher premium.
• Business type. Some businesses – like IT consultants and project managers – are more at risk for a professional indemnity lawsuit, which can lead to higher premiums.
• Business size. Larger companies will often need more coverage, raising your annual costs.
• Cyber risks. Companies that handle sensitive client or customer data face a bigger risk and often pay more for insurance.

Before settling on a policy, a few questions you should consider are:

• Do the services you provide put you at a higher risk of a lawsuit?
• How big is your company and who needs to be covered: just the business owners and your W-2 employees, or should you include your 1099 subcontractors as well?
• What is your budget and what combination of policy limits and deductibles are a good match?

A TechInsurance agent can review your risks and provide you with expert advice and guidance to find the right type of insurance coverage for your business.