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What is Professional Liability Insurance?

A Professional Liability Insurance (also called Professional Indemnity Insurance) is something that is there to protect businesses or even professionals who provide services or advice, such as accountants, lawyers, or doctors, against any claims of negligence or unintentional breach of a written contract, or infringement or misappropriation of any intellectual property from their clients.

For example, if you own an architectural firm, and had an understanding with a client to complete a construction by a set date, but it’s finished a few months behind schedule. If the client files a suit to recover the costs related to the building delays, it can lead to heavy financial losses plus substantial legal fees.

So, in case you face such a situation with your professional services, if you are covered by a Professional Liability insurance, you will be protected against financial loss arising from these kinds of claims. 

Why do you need a Professional Liability Insurance?

A Professional Indemnity or Professional Liability Insurance, will protect any companies and professionals against claims made against them by clients of things like inadequate work, errors, or negligent actions. But why do you really need it?

You and your business will be protected against huge legal expenses in case someone makes a claim against you.
However competent and honest you and your business are, you can never tell when you will be unlucky.
It will help your business run more smoothly, as you won’t need to worry about expensive lawsuits.
This policy is specially designed for the risks faced by professionals and businesses when it comes to their services.
Your customers and clients will appreciate the guarantee of being compensated in case something goes wrong.

What is covered in a Professional Indemnity Insurance?

When you get a professional indemnity insurance, you’ll be covered for...

Professional negligence

Professional Negligence

In case someone raises a claim against you (or your employees) for any negligent acts or some unintentional error.

Bodily Injury and Property Damage

Bodily Injury and Property Damage

If any error, omission or negligence in your services leads to a third-party suffering from a bodily injury or property damage.

Loss of documents

Loss of Documents

You will be protected in case you end up losing or damaging any documents or data that resulted in some kind of loss to one of your clients.

Legal Costs and Expenses

Legal costs and expenses

You will be protected in case of legal liability for things like payment of defence costs, and legal fees and expenses if a client files a case against you.

Public Relations Expenses

Public Relations Expenses

In case you need the help of a public relations consultant to protect your reputation after a claim, we’ll help with the cost of that too.

What is Not Covered?

Since we at Digit believe in transparency, here are some cases where you won’t be covered.

Any criminal act, fines, and penalties.

Deliberate or intentional acts of negligence and omission.

If the services were rendered while under the influence of intoxicants or narcotics.

Losses due to war, terrorism, and nuclear perils.

Any infringement or misappropriation of patents or trade secrets.

How much does Professional Indemnity insurance cost?

The cost of your Professional Indemnity Insurance premium is based on a number of factors, as the risks faced by different businesses and professionals can vary greatly. Some of the factors that are used to determine the premium are:

  • The type of business or services you provide (for example, a medical surgeon will face a whole lot more risk when it comes to their services than say, an accountant)

  • The policy coverage you opt for

  • Where your business is located

  • The number of employees

  • How many clients there are

  • The past claims made against you or your business

  • Your business’s estimated revenue

Who all need a Professional Indemnity Insurance?

If you or your business could need protection from client claims for financial damages from the professional service that you provide, you might need Professional Indemnity (or professional liability) insurance. For example, if...

You or your business provide advice to your clients

Like Consultants, Contractors, or Counsellors.

You or your business provide other professional services

Such as Accountants, Developers, Wedding planners, or Legal professionals, and Medical professionals.

You provide designs to your clients

 For example, Architects, Designers, or Engineers.

You or your business provide some form of guidance

 This could include Fitness Instructors, or Tutors and Teachers.

How to choose the right Professional Indemnity Insurance?

  • Complete Coverage – Make sure that you look for the professional liability insurance policy that gives you maximum coverage for all the risks to your business and all its activities, based on the specific services or work that you do. 
  • Pick the right Limit of Liability – Try to pick a professional liability insurance that lets you customize your limit of liability, or sum insured based on the nature and size of your business and the number of employees  
  • An easy Claims Process – Since claims are really important, look for an insurance company that has an easy claims process, as it can save you and your business a lot of hassle.
  • Extra service benefits – Lots of insurance companies offer all kinds of other benefits, such as 24X7 customer assistance, easy-to-use mobile apps, and more.
  • Compare different policies – While it’s always great to find ways to save money, sometimes a policy with the lowest premium might not be the best option because it might not give you the right coverage, so compare the features and premiums of different policies to find one for you at an affordable price.   

Common Professional Indemnity Insurance Terms Simplified for You

Occurrence

Any incident, defect, hazard, or negligent act that results in some damages to a person or property.

Negligence

Any reckless or unreasonable action, or a failure to exercise care, that results in damages or losses. For example, a personal trainer doesn’t ask a client about any previous injuries and this results in them injuring themselves during a session. 

Medical Malpractice

This refers to any act or omission by a medical provider, where their services fall below the established standards, and result in injury to or the death of the patient. For example, a doctor misread or ignored laboratory results, leading to a wrong diagnosis, and the patient suffering an injury or some unusual pain and hardship.

Third-Party

A third-party is any person (or entity) who is not the insured party (i.e., you) and the insurer. It also excludes any other person who has any financial interest in your business or who you contract with.

Limit of Liability

This is the maximum amount your insurer will be able to cover for you in case you make a claim. It is similar to a sum insured. 

Deductible

In case of a professional liability insurance, you will have to pay a small amount out of your pocket before the insurer can pay out your claim.

Civil Regulatory Proceedings

When it comes to liability insurance, this refers to the amount that you would be liable to pay for any potential damages in case of a lawsuit.

FAQs about Professional Indemnity Insurance in India

What is Professional Liability Insurance?

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Professional Liability insurance is a type of insurance that protects professionals like doctors, accountants, lawyers, and others against any claims of negligence by their clients.

Professional Liability insurance is a type of insurance that protects professionals like doctors, accountants, lawyers, and others against any claims of negligence by their clients.

Is Professional Liability the same as Professional Indemnity?

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Yes, professional liability Insurance is the same as professional indemnity Insurance. It can sometimes also be known as Malpractice Insurance or Errors and Omissions Insurance. 

Yes, professional liability Insurance is the same as professional indemnity Insurance. It can sometimes also be known as Malpractice Insurance or Errors and Omissions Insurance. 

What is covered under Professional Liability Insurance?

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When you get professional indemnity insurance, you’ll be covered in case someone raises a claim against you (or your employees) for any negligent acts or some unintentional error. This includes: Any damages caused due to mistakes, omissions, or negligence in professional services. Failing to uphold any promised services. Loss or damage to any documents or data. Financial loss or damage to third-party suffering from a bodily injury or property damage. Legal fees and expenses. Public relations expenses.

When you get professional indemnity insurance, you’ll be covered in case someone raises a claim against you (or your employees) for any negligent acts or some unintentional error. This includes:

  • Any damages caused due to mistakes, omissions, or negligence in professional services.
  • Failing to uphold any promised services.
  • Loss or damage to any documents or data.
  • Financial loss or damage to third-party suffering from a bodily injury or property damage.
  • Legal fees and expenses.
  • Public relations expenses.

Why do you need Professional Liability Insurance?

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A professional liability insurance is necessary to protect any professional or business who provides paid professional advice or services to any business or individual. It’s essential that you are adequately protected against any claims of negligence made by clients. Such suits can be financially devastating. The cost of defending yourself alone could put you out of business, and on top of that, there might also be the cost of any settlements. But with a Public Liability cover, your insurance company will cover your legal costs and any compensation claims, leaving you and your business free of such financial risks!

A professional liability insurance is necessary to protect any professional or business who provides paid professional advice or services to any business or individual. It’s essential that you are adequately protected against any claims of negligence made by clients.

Such suits can be financially devastating. The cost of defending yourself alone could put you out of business, and on top of that, there might also be the cost of any settlements.

But with a Public Liability cover, your insurance company will cover your legal costs and any compensation claims, leaving you and your business free of such financial risks!

What is the difference between Public Liability and Professional Liability Insurance?

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Public Liability Insurance and Professional Liability Insurance both cover different types of risks. Public Liability covers your business’s legal liabilities against any injury or damages caused to a third party in connection to your business. This includes bodily injuries, property damage, libel, slander and even copyright infringement. For example, if a customer slips and trips while on your business premises, and breaks their arm, this will help pay for their medical expenses. Professional Liability, on the other hand, protects professionals and businesses against the risks associated with providing advice or services to clients. Such as errors and omissions in the services, or professional negligence that lead to injury or damages. For example, a customer could sue you for damages if it's alleged that your advice has caused a loss.

Public Liability Insurance and Professional Liability Insurance both cover different types of risks.

  • Public Liability covers your business’s legal liabilities against any injury or damages caused to a third party in connection to your business. This includes bodily injuries, property damage, libel, slander and even copyright infringement.
    • For example, if a customer slips and trips while on your business premises, and breaks their arm, this will help pay for their medical expenses.
  • Professional Liability, on the other hand, protects professionals and businesses against the risks associated with providing advice or services to clients. Such as errors and omissions in the services, or professional negligence that lead to injury or damages.
    • For example, a customer could sue you for damages if it's alleged that your advice has caused a loss.

I already have Public Liability insurance; do I still need Professional Liability Insurance?

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A Public liability insurance is very important for any businesses that either make physical products or interact with customers, for example manufacturing companies, or consulting firms, as it covers damage caused to any third parties. (For example, if a visiting customer gets hurt at your business’s premises) But, public liability will not protect you in case a client claims financial damages from the professional service that your business provides. (For example, if a customer claims that a web developer made a mistake on their e-commerce site, resulting in missed sales opportunities, and wants compensation). So, if you provide any professional services, you will likely need both types of policies to adequately protect your business from the high cost of unexpected lawsuits.

A Public liability insurance is very important for any businesses that either make physical products or interact with customers, for example manufacturing companies, or consulting firms, as it covers damage caused to any third parties. (For example, if a visiting customer gets hurt at your business’s premises)

But, public liability will not protect you in case a client claims financial damages from the professional service that your business provides. (For example, if a customer claims that a web developer made a mistake on their e-commerce site, resulting in missed sales opportunities, and wants compensation).

So, if you provide any professional services, you will likely need both types of policies to adequately protect your business from the high cost of unexpected lawsuits.

Is having a Professional Liability Insurance compulsory in India?

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It is compulsory for Financial advisors and Accountants to have a professional liability insurance under the Companies Act 2013 While it is not legally required for most other professionals or business to have professional liability insurance, but it doesn’t mean you should skip it as it can protect your business from huge losses in the event of a claim.  Not only is it important to get this protection if you work with clients or customers, but many of these customers and clients might even require it as a pre-condition. Some professions might need this insurance more than others, such as Medical practitioners, Lawyers, IT professionals, Engineers, and Architects. 

It is compulsory for Financial advisors and Accountants to have a professional liability insurance under the Companies Act 2013

While it is not legally required for most other professionals or business to have professional liability insurance, but it doesn’t mean you should skip it as it can protect your business from huge losses in the event of a claim. 

Not only is it important to get this protection if you work with clients or customers, but many of these customers and clients might even require it as a pre-condition.

Some professions might need this insurance more than others, such as Medical practitioners, Lawyers, IT professionals, Engineers, and Architects. 

How to calculate Professional Liability Insurance?

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The cost of your professional liability insurance will be different for different businesses and professionals (as they can make different kinds of mistakes). So it is calculated based on a few factors such as  Type of business or profession Number of employees  Years in business  Location  Policy coverage Claims history

The cost of your professional liability insurance will be different for different businesses and professionals (as they can make different kinds of mistakes). So it is calculated based on a few factors such as 

  • Type of business or profession
  • Number of employees 
  • Years in business 
  • Location 
  • Policy coverage
  • Claims history