Member Article

The importance of professional indemnity insurance

With Watson Burton LLP Law Firm

Professionals work hard every day and the possibility of a negligence action hanging over their heads brings stress, further scrutiny to their completed workload and the sting of the stigma that has developed from the term “negligence”. Values of potential claims can be enormous, highlighting the importance of professional indemnity insurance to firms who can ill afford the payment of such sums or the cost of defending spurious claims.

‘Professional negligence’ occurs where a professional fails to perform his or her responsibilities to the required standard. A professional who is paid by a client for advice and gives careless advice may face a claim by the client, either for breach of the contractual term (express or implied) to take reasonable care, or for breach of a tortious duty of care. Third parties may also be able to bring an action. If a surveyor carries out a negligent survey or an accountant fails in his or her duty and a claim is made in this regard, provided he or she was acting in the interests of the firm, then potential claims should be covered by the firm’s PI cover. Minimum amounts of PI insurance are required by law, the necessary amounts being specified under the regulations of each official professional body.

PI cover is crucial for solicitors, accountants and other professionals, providing a bar to personal liability for claims of negligence. Personal responsibility for claims could be evoked if professionals were acting fraudulently or against the interests of their firm or client.

Alarm bells should be ringing following Merrett v Babb (2001), a decision involving a negligent surveyor. The firm was held liable, but following the firm’s bankruptcy, the Liquidator wrongly cancelled the PI insurance. The Court of Appeal held that, because he had signed the report knowing the purchaser would rely on it, the individual was personally liable for damages. Professionals should also be aware of the possibility of firms holding PI cover but it not being adequate to meet the full value of the claim, thus leaving an uninsured element which may have to be met by the professional. Personal liability could also arise if insurers successfully defend policy claims.

In terms of practical advice, it is worth checking your employer’s PI policy and the relevant levels of excess. Essentially professionals must earmark potential danger, however unlikely it may be. Just remember that professional indemnity insurance is potentially a lifesaver but if there are question marks over the validity or extent of cover, professionals may find themselves facing the financial consequences.

If you have any queries relating to this article, or any other professional indemnity matter, please contact Tom Wills at Watson Burton LLP, email: tom.wills@watsonburton.com.

This was posted in Bdaily's Members' News section by Ruth Mitchell .