Professional advisers, including online accountants, have witnessed a massive rise in the number of negligence claims filed against them since the start of the recession.

Research by Syscap showed a rise of 125% in the number of High Court negligence cases launched between 2008 and 2009. In 2008, for example, there were 80 high court negligence claims against law firms. By 2009, the number had leapt to 210.

No claims were brought against accountants in either 2007 or 2008 according to law firm Reynolds Porter Chamberlain. However, last year accountants faced 13 large High Court negligence suits including claims that auditors failed to spot a fraud or negligently overvalued company assets. Deloitte Touché and PwC were among the well known accountancy firms cited for negligence in 2009.

Claims against professional advisers have now reached the highest level for 11 years and as a direct result, some professional firms are having to borrow money to pay increased professional indemnity insurance rates. PI insurance is a compulsory requirement for lawyers and accountants and it pays for the cost of defending negligence claims and for damages.

Syscap also claims that the steep increase has been triggered by lenders and investors trying to recover falling asset values by suing their advisers. They hope to win damages from the professional advisers they claim gave negligent advice regarding transactions that involved those assets.

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Professional Indemnity (PI) Insurance is a policy that will protect you from claims for damages against your company from your clients. Such claims are made for various reasons but typically are

• Damage to or loss of documents or data belonging to your client
• Negligent behaviour or breaches of a duty of care
• Losses due to theft or other fraudulent behaviour
• Infringement of copyrights, trademarks or other intellectual property rights

In any of these cases the loss suffered by the client can be significantly higher that your actual contract value, so a successful claim would wipe out any profit you made on the contract.

The policy will usually cover the costs of defending any claims made against your company and any subsequent appeals. It will also cover any resulting costs or penalties and the cost of any necessary rework, all of course dependent on the level of cover you have in place. Covering the costs of rework can be important, since it may well head off a larger claim if the original error is not corrected in a timely manner.

You should also note that many contracts include a clause requiring you to hold a certain level of PI Insurance. Given the cost of this insurance, it is a good idea to negotiate a realistic level of cover, proportionate to the work in question. Premiums will depend on various factors but the key ones are the level of risk in your line of business, your typical turnover and the amount of cover needed. Prices are extremely variable, so it pays to shop around.

Finally, it is a bit of a myth that PI claims are never made against freelancers. This is simply not true; some significant claims have been made. Even if your contract does not make it necessary to have PI cover, you should assess the risk of needing it for yourself.

© 2009 All rights reserved. Reproduction in whole or in part without permission is prohibited.

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