When you are asked to sign a contract to supply a service to a client, they may stipulate that you must carry a minimum level of professional indemnity insurance. This cover protects your business against allegations of professional negligence from your client. But what exactly is professional negligence?
Your duty of care
Every professional owes a duty of care to their client and is expected to offer their services to a high standard with reasonable skill and care. So when a professional fails to meet the standards expected of them or is perceived to have failed to meet them by a client, a claim for professional negligence could be the result.
The Supply of Goods Act requires that the professional will perform their service with reasonable care and attention. This means that there does not have to be a specific clause in the contract stating the level of service expected. In practice it is always advisable to fully define the roles and expectations of each party within the contract, limiting the chance of ambiguity.
Examples of professional negligence
There are too many scenarios that can lead to a professional negligence claim to list them all here, but here's just a few examples of where claims come from;
- Failure to complete a project on time or as specified
- Poor or incorrect advice
- Breach of confidentiality or copyright
- Loss of documents or data
- A libelous or slanderous comment
- Design errors
A professional indemnity claim example
An IT consultant was contracted to implement an IT system for a new client. Terms and objectives were agreed which were ultimately met by the IT consultant. However, their client decided that the new system operated too slowly and claimed that our policyholder had been professionally negligent.
The claim was investigated and expert guidance given to the IT contractor, analysing all documentation in order to help them prove that not only had all of the agreed terms and objectives of the project been met, but that most of the performance issues were caused by hardware supplied by another professional rather than the new software. In the event, a greatly reduced claim was paid, with all costs covered by professional indemnity insurance.
Defending a professional negligence claim
As these this example illustrates, professional negligence claims can arise even when you have performed a service to the best of your abilities and often from circumstances that are entirely beyond your control.
Even if you've done nothing wrong and you feel your client's claim is speculative, you would incur legal costs just to defend the claim to prove that you hadn't acted negligently.
So the main point to take away from this is that even the most experienced and careful professionals need professional indemnity insurance to protect themselves.
Read our highly informative PI Buyers Guide to find out more about how professional indemnity insurance can protect your business against the risks of professional negligence.
This guidance note is intended for information purposes only. Whilst all care has been taken to ensure the accuracy of the guidance note it is not to be regarded as a substitute for specific advice. This guidance note shall not be reproduced in any form without our prior permission. © 2018 Professional Indemnity Insurance Brokers Ltd