The vast majority of freelance contractors will encounter contracts with agencies or end clients which require them to carry Professional Indemnity insurance. In most cases, cover is required at a minimum of £1m.
What is PI Insurance?
Professional Indemnity Insurance (also referred to as ‘PI Insurance’ or ‘PII’) provides cover in the event that a professional error or omission in your work leads to a third party bringing legal action against you. The policy will fund the defence of such claims and, in the event that you are held liable for the claimant’s losses, these liabilities will also be covered.
Why do I need PI Insurance?
Any company or individual who gives advice, shares knowledge, or provides expertise to clients or customers is potentially exposed to claims which would be covered by a PI policy. Traditionally, Professional Indemnity Insurance was only of interest to ‘established’ professions – accountants, solicitors, architects, engineers and the like – however, in an increasingly litigious environment, PI claims can occur in scores of professions and sectors.
Am I legally required to carry PI Insurance?
There is no legislation making Professional Indemnity Insurance compulsory as is the case in respect of, for example, Employers Liability or Motor insurance. However, certain regulatory and chartership bodies do require members to carry Professional Indemnity insurance.
Most importantly to freelance contractors, agencies and end clients will stipulate in most cases that Professional Indemnity insurance is carried by any business operating under a contract for services. Understandably, the end client and agency wish to protect themselves in the event that a contractors work is unsatisfactory. This being the case, PI insurance has become a prerequisite for the vast majority of the contracting community.
When should I buy PI Insurance?
In reality most contracts for service will require contractors to have Professional Indemnity in place from Day One, which is certainly ‘best practice’.
It is also worth noting that Professional Indemnity insurance operates on what is known as a ‘Claims-Made’ basis. In jargon-free terms, this means that the policyholder is covered for claims made against them during the term of the policy only. With this in mind, it is recommended that your policy is maintained even during periods of time you are not under contract – this is to protect against situations where an error or omission leading to a claim is not be discovered until after the contract has ended. In these cases you will only be covered if you have a policy in place at the point you are notified of a claim, regardless of whether you had cover in place when the work was carried out.
You should also be aware of the policy’s retroactive date, which will define the period of time during which the work leading to a claim may have taken place.