What is Professional Indemnity Insurance?

PI insurance is one of the most popular insurance policies amongst contractors and the self-employed

Professional Indemnity Insurance explained

Professional Indemnity Insurance is a business insurance policy that reacts in circumstances where a third party (your client) brings a negligence claim against you, alleging that an error or omission in your services has caused a financial loss.

The policy will look to cover the costs of defending your case, such as legal representation, as well as the liability found owing where necessary.

PI insurance is arranged on a 'claims-made' basis meaning that once your policy has lapsed, you will be unable to make a claim even if the incident which gave rise to the claim relates to a period during which your policy was active. It's important therefore to maintain cover until you're no longer subject to the relevant risks this policy covers. See below for more information.

Qdos provides annual policies with a range of indemnity limits (levels of cover) of £1 million, £2 million, and £5 million.


Who needs Professional Indemnity Insurance?

Professional indemnity insurance is not a legal requirement in the UK, however, you may need PI insurance if:

  • You provide professional advice such as consultancy services
  • You handle data on behalf of your client
  • You provide technical design or other expert services such as CAD design or bookkeeping
  • Your client requires you to hold professional indemnity as part of your contractual agreement
  • Your professional body or association requires you to hold a suitable PI insurance policy
Thoughtful contractor

When can claims occur?

There are time limitations that apply for claimants looking to issue negligence proceedings, for the majority of negligence claims the time limit is 6 years following the date of the negligent act.

There are certain circumstances in which the time limits would differ if the negligence only becomes apparent at a later date. It is possible to bring a claim outside the six-year limitation period if the damage complained of was not discovered until after the expiry of this period. This is known as 'latent damage', and in these circumstances, the claimant has three years from either the date of knowledge of loss or the date when it ought to have reasonably known about the loss.

What constitutes what 'ought reasonably to have been known' depends on the circumstances of the case, and specific advice should always be sought. There is a final time limit of 15 years from the date of the defending party's negligent act or omission.

Read about our real-life Professional Indemnity claims
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Closing the company

It is difficult for a negligence claim to be brought against a company that has ceased trading and has been closed, however, there are certain circumstances in which a court can order the company to be restored to the register and for a claim to be pursued against it.

This will depend on specific circumstances (for example: if you had knowledge of a claim, or potential claim, at the time the company was closed, amongst other factors) and specific advice should be sought (i.e. from a solicitor).

Read more about when you should keep PI insurance in place

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