When you run a business, clients place their trust in you. They expect you to deliver on your promises and provide competent advice or services.
However, even with the best care, things can sometimes go wrong. That is why every trade or industry must have professional indemnity insurance. It shields you from liability if you are sued for something you did or did not do in your professional capacity.
Understanding the most common causes of professional indemnity claims might help you safeguard your company. So let’s examine the following potential scenarios.
7 Common reasons for filing a professional indemnity insurance claim
As a professional or a business, you are perceived as an expert about your services. That means you must carry out your responsibilities at the highest quality that your clients expect. Otherwise, you have breached your duty of care if it causes financial loss or injury to your customer.
Professional negligence includes:
- Misleading or incorrect advice
- Acting on behalf of the client without proper instructions
- Careless or inappropriate treatment
- Engineering faults
- Erroneous property evaluations
- Fraud or dishonesty
While these mistakes or oversights are apparent reasons for professional negligence, failing to counsel customers about their options appropriately can be particularly damaging.
2. Breach Of Contract
A breach of contract means breaking any agreed-upon rules and terms of a legally binding agreement. Failure to meet the conditions of your contract with a client or to supply the services you have agreed to provide can result in this outcome occurring.
Depending on the severity of the violation, it might range from a late payment to a more severe misdemeanor like failing to fulfill a promise.
Defamation occurs when you say or write something that harms another person’s reputation. Slander and libel are the legal terms for these two distinct acts.
Slander can take the form of someone who falsely accuses a doctor of falsifying his credentials, resulting in his dismissal.
On the other hand, libel is any published content that is false and makes a person look immoral or disgraceful. The potential for this case has multiplied tenfold in the digital era.
Nonetheless, social media is not the only area where this violation might occur.
4. Misrepresentation or false information
Misrepresentation is the practice of making false claims to influence the decision of the other party to sign a contract. Since the client believes that everything will be fine, they agree to the deal in good faith. Otherwise, they won’t sign the contract if they find misleading information. Uncovering the deceit may invalidate the agreement.
For example, if someone is trying to sell a car but knows that the gearbox is faulty, they are guilty of fraudulent misrepresentation. Also, it could be a misconstrued piece of professional advice that causes a client to lose money.
Depending on the circumstances, the affected party may seek restitution.
5. Breach Of Confidentiality
Disclosing sensitive information, such as business plans or financial information, breaches trust without the owner’s permission.
Sending an email intended for another client is a typical case of confidentiality violation. In this scenario, you have released sensitive information about the other client to a third party without permission. Unintentional or not, a betrayal of trust nonetheless warrants professional indemnity claims.
6. Intellectual Property Infringement
Using a third party’s image, brand, logo, or design without the owner’s consent can be considered intellectual property infringement. Since anyone can copy and paste anything from the internet, this is becoming a more significant issue.
Copyright, patents, trademarks, registered designs, and circuit layouts all constitute instances of intellectual property infringement. Each one is unique. To protect yourself or your business, you need to be familiar with each term.
But the best course of action is to seek the advice of a professional indemnity insurance broker.
7. Loss of documentation or data
People sometimes file things incorrectly, leading to missing data or lost documents. But that can also mean you’ll have to spend time and money repairing or retrieving essential information for your business. Thus, it is a severe issue for businesses, particularly if you have third-party documents or data in your control.
Having compromised documents or data belonging to a third party in your possession can negatively impact your professional service. Furthermore, if the records are confidential, it may result in an invasion of privacy.
However, you can take steps to safeguard your company from this, but you’ll need to back up your claims with evidence.
Defending against indemnity claims
Running a business entails several risks, including the possibility of professional indemnity lawsuits. Even if you can avoid all accidents and mishaps, you must make efforts to safeguard yourself. Professional indemnity insurance should be a key component of your risk management strategy.
To get the best professional indemnity insurance coverage for your business, you should look for an insurance broker who has a thorough grasp of your industry.