Recently I sat next to a gentleman on a flight back from Melbourne and predictably we asked each other the same question “What do you do for a living?”.
It turns out that my travelling partner was headed to Karratha to train contract managers on how to properly read and interpret contracts, and we got talking about Professional Indemnity Insurance.
I’ve helped many people to protect their businesses with appropriate covers and the main reason why most people take out Professional Indemnity cover is usually for one of three reasons.
Firstly they have a statutory requirement to have the cover and as such need the policy in place to satisfy their licencing requirements. Accountants, bookkeepers, legal professionals and many other professions require a minimum level of cover to be in place at all times.
Secondly they have a contractual obligation to have a policy in place. It’s not uncommon when engaging with a corporate partner, a Government Department or working with a large corporation to have to enter into a contract with them and these contracts usually spell out a minimum level of cover that is required.
Last but not least many professionals maintain a policy to provide them with the peace of mind and security they need should an event occur, or if legal action was taken against them. Certainly for many small consulting practices the knowledge they have a policy there to back them up is a great comfort.
In my discussions with the gentleman on this particular flight he indicated that in his practice he was firmly in the second camp, opting in and out of Professional Indemnity covers as they entered into and completed contracts of engagement with their various clients.
And this is where the problem lies.
Unlike Public Liability policy covers or other forms of insurance Professional Indemnity is what we call a “Claims Made” contract of insurance. What this means simply is that if you are unlucky enough to ever have legal action taken against you the claim would be made against the policy that is in force at that time.
"the claim would be made against the policy that is in force at that time."
The distinction is that if you have cancelled your Professional Indemnity covers when your contractual obligations ceased, and legal proceedings are initiated you will most likely find yourself without cover, as there is no policy in place when the claim is made against you. You may also find yourself in breach of the initial contract.
To prevent this it is important to maintain a policy at all times when your operate your business. This will insure a continuous timeline of cover and insure that any nasty surprises are picked up by your current policy.
If you want to know more about Professional Indemnity Insurance your can access our free fact sheet below.
If you want to talk about Professional Indemnity covers in relation to your own professional practice please contact me I would love to hear about your business.
Mike Lancaster
Managing Director
Lambda Insurance Brokers
Phone - 0400 362 444
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