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Contractor insurances – protecting your business with professional indemnity insurance
Contractor insurances protecting your business with professional indemnity insurance
Professional indemnity (PI) insurance can protect contractors' businesses against the risk of a client taking legal action over alleged breach of contract, negligence or other perceived failures to deliver on a contract.
Because contractors are not employees, they cannot rely on an employer's insurance to protect them, and in most cases an agency would not provide any protection, so contractors are prudent to make their own contractor insurance arrangements.
Many clients require contractors to have PI before they can be hired. Public sector clients generally require at least 1m in PI cover before they will hire a contractor; some client organisations insist on greater amounts if the potential for loss on the project is significant.
What risks does PI insurance cover?
Whether they are IT specialists, engineers, interim executives or medical locums, contractors typically provide complex and expert services on high-value projects, so the potential for financial loss if the project goes wrong is significant.
A comprehensive PI insurance policy is designed to meet the cost of defending claims and any damages, and would also usually include:
Negligence, such as giving incorrect advice or making a mistake
Unintentional breach of a written contract
Infringement of intellectual property rights, such as copyrights or trademarks
Claims for defamation through libel or slander
Civil liability, which includes cover against claims arising from pretty much any business activity that is not specifically excluded
The costs of lost, stolen and damaged client data and documents
Losses arising from the failure of a subcontractor.
Some policies will also include cover against client claims arising from works completed before the contractor took out the PI policy, but contractors should check the terms of any policy very carefully to ensure previous contracts are included.
Different contracting disciplines require specific cover
Contractors are typically expert specialists in their own field, and as a result may have highly specific risks that apply only to their area of expertise. Also, there is often legislation that applies to a particular area of business, such as construction or finance.
As a result, most PI insurers have developed policies that apply to specific types of contractor:
IT contractors
Engineering contractors
Interim executives and consultants
Finance contractors, including accountants
Construction contractors, such as architects and surveyors.
How much should PI cost?
A comprehensive PI policy can cost from as little as a few tens of pounds a month to many tens of thousands of pounds a year, depending on the level of cover required, the sales turnover of the contractor's business and the nature of the services that a contractor supplies.
However, a single claim by a disgruntled client that may not even be down to the contractor's actions can result in huge legal bills and claims for compensation that, without contractor insurance, would financially ruin most contracting businesses.
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