PI insurance for contractors – don’t take the chance

PI insurance for contractors – don’t take the chance

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.

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Image: gas mask fire by Matheus Sanchez

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