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27 November 2023

Professional indemnity insurance: who is covered?

4 mins

Before embarking on time consuming and potentially expensive litigation against an individual or company, it is often worth checking that the individual or company has sufficient assets to pay any judgment you may successfully obtain against them.

Whilst obtaining a County Court or High Court monetary judgment would be seen as a success, it is only of any real use if the debtor then actually pays the money judgment they owe to you.

Pursuing a professional negligence claim against a ‘professional’ is no different to the above. It is important to check whether the individual or their company has sufficient assets to pay any judgment.

In many cases, the professional or their company will have professional indemnity insurance (PII) in place to cover negligence claims. For a number of professions, PII cover is mandatory in order to be a member of the professional body. For example, the following regulatory bodies all make it mandatory for its members to have PII cover to claims:

  • Solicitors Regulation Authority (SRA) – covering claims against solicitors;
  • Royal Institution of Chartered Surveyors (RICS) – covering claims against surveyors;
  • Bar Standards Board (BSB) – covering claims against barristers;
  • General Medical Counsel (GMC) – covering claims against doctors;
  • Institute of Chartered Accountants for England & Wales (ICAEW) or Association of Chartered Certified Accountants (ACCA) – covering claims against accountants.

Each of these professional bodies has their own rules and regulations about the level of cover each company needs to cover any one claim. By way of example, the Law Society requires members (i.e. firms of solicitors) to have an insurance policy with an authorised insurer that has entered into a participating insurance agreement with the Law Society. The minimum amount of cover for any one claim is £3 million.

What does professional indemnity insurance cover?

PII will cover claims made by a client for professional negligence or mistakes made in the work that an individual or company has done for them. This could be in respect of incorrect advice, sub-standard work or other professional errors. Professional indemnity insurance policies may not, however, cover a dishonest or fraudulent act or omission which has been carried out by the individual insured.  

PII can cover the cost of legal defence, compensation payments, any additional costs for rectifying an issue and loss of income as a result of the claim.

What happens when a ‘professional’ or the company they work for is no longer trading and have been made bankrupt or gone into liquidation?

As well as PII, a number of the above professional bodies make it a condition of membership that the ‘professional’ also has ‘run-off’ cover, to cover claims that are raised after the company has ceased trading. The length of ‘run-off’ cover will again depend on the rules of the professional body.

For example, the Law Society requires its members to have a minimum of six years run-off cover. This means that even if a claim is bought against the firm after they have ceased trading, as long as the claim is bought within that six-year period, it will usually be covered by the run-off insurance.

Is professional indemnity insurance compulsory?

When you instruct a ‘professional’ to carry out services for you, be it a solicitor drafting a will for you or a surveyor in relation to a property purchase, it is always a good idea to check they have adequate PII in place. Their terms and conditions will usually detail what insurance they have, who it is with and the minimum cover for any one claim. However, if in doubt, ask them to provide you with a copy of their PII so you can ensure that if something does go wrong, there is adequate cover in place to cover any claim that you may need to bring for any losses you suffer as a result of that professional’s negligence.

Unfortunately, although having PII is effectively mandatory in a number of professions, it is not compulsory for all professionals to have PII. Many unregulated service providers do not have to have professional indemnity insurance, although they would be wise to take out these policies to protect them in the event of any claims against them.

The cost of PII and run-off cover can be expensive so some firms may decide to take the risk of not having insurance in the hope that no claims are bought against them.

For more information on our Professional Negligence services for individuals, please visit our page here.

For information on our Professional Negligence services for businesses, please see here.

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