The majority of Professional Indemnity Insurance claims we receive are from IT consultants and accountants/bookkeepers, however PI risks can exist for most professional services where a duty and standard of care is expected.
Below are a few examples of real life claims made under a Professional Indemnity Insurance policy.
The Insured worked as a bookkeeper for a company. They worked remotely and used email for all correspondence. The company's MD would send instructions to the Insured via email, including bank payments to be made on his behalf. The Insured received payment requests for large payments to be made totalling £35,500. This did not seem unusual to the Insured. However it transpired that the payment request had not been sent by the MD. At first it was believed that the MD’s email had been hacked by a third party but in fact the email address had been cloned.
The claim was opened on 25 January 2016 and closed on 5 September 2016. The claim was settled for the full amount transferred to the third party given the Insured made an error in transferring the funds to the third party. A Settlement Agreement was entered into between the parties and the matter was resolved without proceedings being issued.
The Insured are IT consultants who had carried out a number of enterprise architecture projects for the claimant on behalf of their end client. These projects were undertaken under a master service agreement which outlined the Insured’s ongoing responsibilities regarding confidentiality.
In August 2018 the Insured received a letter from solicitors claiming the Insured were in breach of the master agreement on the basis they had knowingly undertaken work with a firm who were in merger talks with the end client and, in doing so, had disclosed confidential information.
The letter threatened an injunction and gave the Insured only days to reply. Prior to notification to insurers the Insured engaged solicitors to respond to the claimant and refute the allegations. A compromise agreement was reached between the parties in September 2018 and, at this stage, the Insured notified Insurers to reclaim the legal costs they had incurred in defending their position.
While these legal costs had been incurred prior to notification and without insurer’s prior consent it was agreed that the Insured had acted reasonably in trying to mitigate any loss given the impending injunction and that insurers would make a contribution to these costs. Some aspects of the claim would always have fallen outside the scope of the policy as part of the claim related to the apportionment of fees and other contractual matters, but the allegations regarding the breach of confidentiality would have formed the basis of a valid claim.
The Insured accepted a contribution of £2,000 towards the total of £4,500 incurred in late September 2018 and the claim was concluded in 2 October with this payment being made directly to the Insured.
The Insured, an IT Consultant, sold a virtual server to a client, who in turn sold it on to their client. The Insured however retained responsibility for the provision of the ‘back up’ process to the end client. Some work was subsequently undertaken by a sub-contractor on the server, and as a result the end client lost 16 months worth of data.
The Insured had some liability as they were responsible for maintaining the back up process, which unbeknown to the Insured had failed. The data was therefore irrecoverably lost and the end client originally demanded £15,000 from the Insured’s client (to whom they were contracted) for the cost of reinstating the lost data.
The end client could not provide evidence for the majority of the sum sought, and therefore eventually accepted £3,000 in full settlement. This settlement was split 50/50 between the Insured and their client, with the Insured making an independent recovery of £485.79 from the original owner of the server. The issue was originally notified by the Insured on 6 June 2014 and settlement was achieved on 24 November 2014.
The Insured’s client wished to sell some commercial land and so the solicitors acting for the Claimant in the sale sought confirmation from the Insured as to whether an option to tax over the land had been exercised by the Insured. Had an option to tax had been made then VAT on the sale of the land would be payable and should have been charged to any potential purchaser.
The Insured investigated the matter and advised that no option to tax had been made. VAT was accordingly not charged on the sale of the land. This advice was incorrect and so the Claimant was issued with an outstanding VAT liability in the sum of £47,503.16.
Further investigation revealed that the Insured had relied on VAT enquiries made with previous accountants when a simple call to HMRC would have sufficed. However, relying upon various mitigating arguments (including uncertainty over the bookkeeper’s remit of responsibility, reliance on previous accountant’s advice and client’s uncertainty over the VAT position) panel solicitors were able to successfully negotiate settlement at £20,000. Notification made in April 2018 and concluded in June 2019.
A breach of confidentiality is when private information is shared with a third party without the consent of the owner of that information.
Professional Indemnity Insurance is a business insurance policy designed to protect your business against claims for financial loss. Find out more.
Professional indemnity insurance reacts in circumstances where you are alleged to have caused a financial loss due to negligence, omission, or error.
Ask away! One of our team will get back to you