In this blogpost, Harsha Asnani, student, NIRMA University, Ahmedabad writes about cover available to professionals through Professional Indemnity Insurance. The author also writes about the reasons of why such insurance schemes are favourable to the professionals and entities, costs and type of professionals covered under this scheme.

In the ever increasing consumer-friendly nature of legal environment across different countries, the people working in different professions have to pay utmost attention in the manner in which they perform their jobs. The courts have become more consumer friendly in their approach. It has become a trend that the consumers especially in the medical industry have registered complaints against the doctors or hospital authorities for their negligence. In recent times it is not just the medical professionals or hospital authorities who face such issues but also various other professionals such as auditors who can be sued for filling a wrong statement of income or for that matter a lawyer and an architect etc. as well for negligence in the delivery of their services resulting into harm for others. Although the consumers are protected in every possible manner, the professionals also at the same time are given some sort of protection by way of indemnity insurances. Such insurances are known as the Professional Indemnity Insurance.

Professional Indemnity Insurance refers to insurance programs which protect the professionals from claims that may arise from negligent performance and lack of duty of care or due to errors or omissions while performing duties. It was designed to protect those professionals who provide advice and service to their customers. It covers those claims that may arise for financial losses that due to the advice and services that the professionals provide to their clients. Such financial cover may also include costs involved in defending legal recourses and the subsequent damages that may be payable. Professional indemnity aims to protect both the assets and reputation of the professional that are susceptible to be harmed by the legal actions initiated by the suffering victims.

What is covered under Professional Indemnity

The claim received under professional indemnity covers the following expenses:[1]

1. Compensatory damages awarded against the professionals;
2. Settlements;
3. Legal Costs and expenses associated with defending legal actions.

Which entities are covered under such claims[2]

1. A legal entity and its subsidiaries;
2. Past and existing principal or partner or director;
3. Past or present employees;
4. Contractors;
5. Any other person or entity related or acting within the scope of any of the former’s duties. For example staff like peons and sweepers in a professional establishment can also be covered for errors, omissions and negligence, provided that they are named in the policy. Such policies also neither cover any fines, penalties or punitive or exemplary damages nor any sort of third party public liability or losses arising out of war and nuclear perils nor any errors caused due to wilful neglect or deliberate act or financial losses due to loss of goodwill or loss of market share. Professional indemnity insurances also do not provide for protection in cases where the services are rendered under the influence of intoxicants or narcotics. In the case of dentists, any claims arising out of the discharge of duties under general anaesthesia are not covered unless they are performed in a hospital. Like all other insurance claims, professional indemnity insurance also does not provide any compensation in case of breach of clauses of confidentiality or suppression of anticipation of a claim. Any such condition shall lead to a rebuttal of the claim. Also, it should be kept in mind that in some cases there is a long time gap between the actual occurrence of the event and the time when the claim is actually made. In such cases, the companies or professionals must ensure that the continuity of coverage exists in order to avoid the reasons due to which the policy cannot be claimed

Indemnity insurances cover civil liabilities and not necessarily claims arising out of criminal liabilities or those acts which are committed in violation of any law or ordinances prevailing in the land

Why Professional Indemnity insurances

In a professional conduct claim, one has to spend a lot on money and time-based resources. They bring a lot of damages to the reputation irrespective of whether they are proved or not. In order to avoid all such claims from hampering the reputation of a professional, it is desirable that such indemnity insurances be opted for.

Types of Professions covered under the Professional indemnity insurances

Following are the broad category of professionals to whom the cover of Professional Indemnity insurance programs is available. Depending upon the policy of various insurance companies, there may be other professions as well that may be covered under this insurance scheme.

1. Management Consultants: The protection available to management consultants, among other things include Infringement of intellectual property rights, Fraud and dishonesty of employees, defamation, libel and slander, infringement of privacy, misuse of confidential information, a certain amount of PR and legal expenses and a certain amount of cyber liability.
2. Project Managers: The protection available to project managers, among other things, include unintentional breach of trust, professional negligence breach of intellectual property rights, fraud and dishonesty of employees and a certain amount of PR and legal expenses and a certain amount of cyber liability
3. Designers such as graphic designers, interior designers and web designers: The protection available to designers, among other things, includes unintentional breach of trust, professional negligence, and breach of intellectual property rights, certain amount of PR and legal expenses and certain amount of cyber liability and certain amount of PR and legal expenses and certain amount of cyber liability
4. Marketing consultants: The protection available to marketing consultants, among other things, includes breach of advertising regulation, infringement of intellectual property rights, defamation, libel or slander, infringement of privacy, misuse of confidential information, mitigation of loss, irrecoverable fees cover, cover the expense of withdrawal of content following a court order, certain amount of public relations or legal expenses and certain amount of cyber liability.
5. IT and Software Consultants: The protection available to IT and Software Consultants, among other things, includes unintentional breach of trust, professional negligence, and breach of intellectual property rights, a certain amount of PR and legal expenses and a certain amount of cyber liability.
6. Interior Designers: The protection available to interior designers, among other things, includes unintentional breach of trust, professional negligence, and breach of intellectual property rights, certain amount of PR and legal expenses and certain amount of cyber liability.
7. Life Coaches: The protection available to life coaches, among other things, includes unintentional breach of trust, professional negligence, and breach of intellectual property rights, certain amount of PR and legal expenses and certain amount of cyber liability.
8. Accountants and Bookkeepers: The protection available to accountants and book-keepers, among other things, includes infringement of intellectual property rights, defamation, libel or slander, infringement of privacy, misuse of confidential information, fraud and dishonesty of employees, certain amount of PR and legal expenses and certain amount of cyber liability.
9. Engineers- The protection available to engineers, among other things, includes unintentional breach of trust, professional negligence, and breach of intellectual property rights, certain amount of PR and legal expenses and certain amount of cyber liability.
10. Other professions include recruitment agencies and consultants, fitness professionals including personal trainers, dance teachers or yoga instructors, teachers including private tutors.

Professional indemnity insurance in case of medical professionals

In India, medical professionals and establishments have been made available with professional insurance indemnity cover in India after 1991. The insurance companies not only pay for the monetary claims but also arrange for the legal help from advocates. Benefits of the medical indemnity insurance are not only beneficial to the doctors or hospital authorities but also to the patients as their medical claims get easily fulfilled by the insurance companies. It provides for the retroactive benefit. It takes care of a number of damages against the third party. In cases of no-fault liability also, the scheme may give benefit to the patients who have suffered permanent disablement or death. The only limitation to this indemnity insurance is that the compensation is limited by the limit of indemnity that is decided for. Such insurances provide relief to the medical practitioners from the growing menace of claims from their patient. It must be kept in mind that although this security is available to the professionals but this may be limited to the monetary terms. Security of reputation is not something that such insurance claims can provide for.

[1] http://www.indiainsure.com/pdf/Inotes-Apr12.pdf

[2] ibid