Professionals such as doctors, engineers, accountants, lawyers, architects, and others offer major contributions to society through their work.
However, these professionals are, after all, human beings. And just like all of us, they are prone to human errors and lapses in judgment that may cause problems for their clients. And if they make a mistake, clients may decide to take legal action against them. To combat the financial repercussions of such a risk, professionals purchase a special kind of Liability Insurance policy known as Professional Liability Insurance.
Professional Liability Insurance, better known as Professional Indemnity Insurance or Errors and Omissions Insurance, is a Commercial Insurance policy that seeks to protect the legal liability of professionals like doctors, lawyers, chefs, consultants, etc. This liability could arise out of claims of negligence, wrongdoing, misrepresentation, or harmful misconduct during the course of their professional duties. This kind of insurance is also ideal for businesses like consultancy firms, financial institutions, IT companies or any other service-led business.
A Professional Liability/Indemnity Insurance policy primarily covers the insured business or professional’s legal liability to pay compensation in the event of :
- Third party claims of negligence, wrongdoing, misconduct, error, or omission in professional services rendered that resulted in death, bodily injury, or property damage
The legal costs incurred during the investigation and subsequent court appearances, including cost of representation, damages, etc. are also covered under this policy.
This cover can also be extended to cover joint ventures, subsidiaries and managed organizations.
On payment of additional premiums, some insurers also offer certain add-on covers. These can vary from insurer to insurer. Some of these are :
- Employee Dishonesty cover
- Intellectual Property Rights (IPR) infringement liability cover
Professional Liability/Indemnity Insurance comes with the following exclusions :
- Any criminal act, dishonesty, fraud or any act committed in violation of a law or ordinance
- Fines, penalties, punitive or exemplary damages
- Deliberate, willful and intentional non-compliance of statutory requirements and technical standards commonly observed in professional practice as laid down by law or regulated by official bodies
- Services rendered while under the influence of narcotics or intoxicants
- Personal injuries such as libel, slander, false arrest, wrongful conviction, defamation, etc.
- Claims involving Intellectual Property Rights (IPR), unless covered as an add-on
- Financial loss such as loss of goodwill, loss of market, etc.
- Failure to provide support to the claimants
- Aviation liability
- Delay in delivery or failure to deliver
- War and nuclear perils
- Contractual liability
- Prior and pending claims
- Any third party public liability
Some insurers also provide Errors and Omissions Insurance for the insured’s products. Here, the business’s legal liability to pay damages in the event of the insured product not performing the intended function due to defect, deficiency, inadequacy or hazardousness can be covered.
Additionally, professionals can also opt for group Professional Indemnity Insurance policies that provide coverage to multiple members of a single profession. These are often taken by establishments like hospitals, accounting firms, and other service institutions. Group policies generally come at cheaper premiums depending on the number of members added to the group plan.
Professional Indemnity Insurance is a crucial security for millions of professionals in the country. Apart from indemnifying professionals against their legal liability, this policy also helps claimants duly receive the compensation owed to them.
What happens when a business's product causes harm or damage to its consumers? Find out here