What is Indemnity Insurance?
How to Protect Your Business from Potential Legal Action
If your business provides advice or services to customers, there is a risk that a customer or a third party may make a claim for professional misconduct or negligence. For small businesses especially, the cost of defence in court, along with time and the possible damage to professional reputation, can place enormous pressure on both you and the future of your business.
Indemnity insurance protects you and your business from these types of claims so that you can confidently go to work.
What is Professional Indemnity Insurance?
Professional indemnity insurance is designed to protect small businesses who provide services and advice. It covers claims customers or other third parties may make, such as negligence or breach of duty.
In other words, if an employee does something (or omits to doing something) and the customer is injured or loses money as a result, that customer may take legal action. Indemnity insurance protects your business from paying enormous legal costs should you provide incorrect advice to a client, or make a mistake in your professional role.
Do I Need Professional Indemnity Insurance?
Professional indemnity insurance is an important safeguard. As the director of a business, you may be held accountable for not only your actions, but for those of your employees, associates and volunteers.
For example, if you are involved in advertising, or are an engineer that provides advice on the structure of a development, professional indemnity is vital. Claims may also arise from simple acts such as losing a document, or forgetting to book a venue, that may result in you having to defend yourself and your business in court. It will not only cost a lot of money, but also time, emotion, and potentially the reputation your business has worked hard to achieve. Indemnity insurance aims to protect you against these possible claims.
What Does it Cover?
Depending on the policy you choose, professional indemnity insurance may cover:
- Damages awarded against you;
- Costs to defend yourself in court;
- Court attendance costs; and
- Claims investigation costs.
Generally, professional indemnity does NOT cover:
- Fraud and dishonesty;
- Intentional damage;
- Bodily injury and property damage; and
- Known claims and circumstances.
What to Consider Before Choosing The Right Cover For You
- What could potentially go wrong and how much would it cost to fix?
- What types of jobs do you perform? What is their value?
- Does your profession have any statutory requirements?
- If action was taken against you, what could be the legal and investigative costs?
One more thing – as your business grows your exposure to risk may also increase. Adjust your level of cover accordingly.
Do you need indemnity insurance for your business? Contact a LawPath consultant on 1800LAWPATH or use our quick quotes service to obtain a fixed-fee quote from our network of 600+ expert lawyers. Indemnity insurance is the safety net that can protect you and your company from any twists or turns that the business world may deliver.
Sydney is a Paralegal at Lawpath working in our content team, which works to provide free legal guides to enhance public access to legal resources. With a keen interest in Tort and IP Law, her research focuses on small businesses, and how they can better navigate complex legal procedures.