Professional Indemnity Insurance
When you think about Professional Indemnity Insurance in Hong Kong, most business owners think about Malpractice Insurance purchased by doctors and other healthcare professionals. But any business that offers professional or advice services are just as likely to be at risk of professional liability or errors and omissions claims.
In today’s litigious world, more businesses need to consider purchasing this valuable cover as part of their risk management strategy. And in some cases, it’s mandatory as well – if your job requires you to hold a government license, you will likely need to have some form of Professional Indemnity Insurance in place before opening your doors for the first time.
What is a “professional”?
A professional is anyone clients depend on for accurate advice or professional services. Failure to properly provide advice or professional services can cause your clients to suffer a financial loss or a bodily injury. When that happens, you can be sued.
Some common examples of professionals include:
- Real estate agents and brokers
- Doctors, nurses and other healthcare practitioners
- Fitness trainers
- Insurance agents
- Recruitment agencies
- Investment managers or financial advisors
What is the legal duty of a professional?
Professionals are required to exercise a duty of care when performing their duties equal to other professionals in your field – given the same circumstances. This standard is meant to reflect the specialized training you’ve received up to this point.
In layman’s terms, you’re held to the same standard as other professionals in your field and expected to act with the same level of care and knowledge. If you fall short of this standard and cause your clients to sustain a financial or physical loss, you can be held liable in court.
Many professions also have governing or licensing bodies that lay out additional requirements or a code of conduct over and above what is legally required. Make sure you follow those as well or you could face fines or other sanctions.
What are my risks as a professional?
In today’s litigious world, you can be sued for any number of things. But most of the time, we see lawsuits alleging:
Negligence: usually this is when you get sued by someone alleging that you breached your duty of care by giving incorrect advice or by making some kind of mistake.
Defamation: this means that you’ve done something to damage another person or business’ reputation. Usually these claims will be alleging either libel (written defamation) or slander (spoken defamation).
Copyright Infringement: this cover is especially important for businesses in IT or technology as you may inadvertently incorporate some copyrighted works into a project you’re doing for a client.
Breach of Privacy: this is especially important for medical or recruitment professionals who handle confidential data.
What is Professional Indemnity Insurance and what does it cover?
Professional Indemnity Insurance in Hong Kong, sometimes called Errors & Omissions Insurance or Medical Malpractice Insurance (depending on the industry you’re in), covers any settlements or damages awarded by the court should you lose a lawsuit and much more…
Legal Defense & Court Costs
Frivolous or meritless lawsuits are still expensive. If you get sued, your Professional Liability Insurance policy will pay for any costs associated with your legal defense. The insurer will hire a lawyer for you, pay any court costs, pay to bring in expert witnesses, post bonds, and other costs necessary to defend you and your business.
Because the insurer is responsible for paying any damages awarded, it is in their best interest to dig deep into their pockets and bring in the best legal team possible to defend you. Not only does this take away your financial burden, winning the lawsuit can help protect your business reputation.
Most policies will extend your cover to liability arising out of your professional activities anywhere in the world as long as the claim is filed in your home country. This is especially important for internet-based businesses or consultants that work with clients all over the world.
Most Professional Liability Insurance policies will cover liability arising out of services rendered as far back as a few years before the start date of the policy. This is handy when switching insurers or for first-time buyers.
Intentional Acts Excluded
As with most insurance policies, intentional acts will not be covered.
For example, let’s say you are an independent marketing consultant hired to create a slogan for a new product line. If you accidentally use a slogan that is substantially similar to an existing product, you could be sued for violating their trademark rights. Luckily, because it was not intentional and you had Professional Liability Insurance, the insurer will pay for your defense and any damages awarded to the plaintiff. You’ll just need to pay the deductible – a far cry from the full force of the trademark lawsuit.
Do I need Professional Liability Insurance?
In short, the answer is yes. Some professionals like doctors or insurance brokers will need insurance before they can receive their license and do business. But even if it’s not a requirement, it can still be a worthwhile investment as clients will feel more confident doing business with you if they know you’re insured. In a competitive business environment, that could be the difference between winning and losing an important deal.
In today’s litigious environment, it’s more important than ever for business owners to find ways to transfer some of the risk of doing business. Professional Liability Insurance is a great way for business owners to transfer risk, protect their reputation and ensure the business has the funding necessary to survive a lawsuit.
If you’re interested in learning more about how Professional Indemnity Insurance in Hong Kong can fit into your business’ risk management/compliance plans, contact a licensed Trusted Union insurance adviser.
Professional indemnity Insurance FAQ
Do I need professional indemnity?
If you’re a professional, the answer is a resounding YES. In today’s litigious world, more and more businesses need to consider insurance as part of their overall risk management strategy.
Professionals are anyone whom clients depend upon for accurate advice and professional services (i.e. insurance brokers, real estate agents, consultants, doctors, engineers, lawyers, etc.). Professionals hold a special position of trust in that if they fail to properly provide advice or services, their client could suffer financial loss or bodily injury. If that happens, many clients will sue to try to recover damages and get compensation. Most professional indemnity lawsuits we see these days will allege:
• Negligence or carelessness
• Copyright infringement
• Breach of privacy or confidentiality
Without professional indemnity insurance, your business would be fully responsible for paying these damages leading to crippling financial losses or worse. If you carry the proper professional liability insurance your insurance company will step in to defend you in court and pay damages if necessary.
What level of professional indemnity do I need?
In general, we recommend buying as much insurance as you can afford.
The level of professional indemnity you need depends on the terms of your engagement contracts, the risks and potential damage you could cause and the value of your contracts.
Potential Losses:Depending on what type of professional you are, the potential damages can either be extremely high. If you’re a lawyer who works exclusively with small clients, maybe you don’t need that much insurance. Contrast this with an engineer or architect working to build billion dollar skyscrapers which could collapse due to a design error and injure hundreds or maybe even thousands of people.
If the type of business you do involves someone’s health or large monetary sums, you would need to purchase more professional indemnity insurance than someone working on smaller projects.
Contract ValueThis factor is closely related to the above two. The larger your client contracts are, the greater the possible financial damage. This means you would need to purchase more insurance than someone working with smaller clients with smaller contract values.
Final DecisionWith the above 3 factors in mind, I would suggest speaking to one of Trusted Union’s licensed insurance brokers about your specific business, needs, budget and risk tolerance before deciding on the level of professional indemnity needed.
What's the difference between professional indemnity and public liability?
Although they are both considered liability policies, they are very different in terms of who they are meant to protect.
Public liability policies are meant to protect the public. These are 3rd parties that may suffer property damage, financial loss or bodily injury as the result of your business activities. For example, if a customer slips and falls in your store, that would be considered a public liability issue and that policy would respond to defend you in court and pay damages as necessary. One important distinction is that this is a general liability policy and does not include liability arising out of professional activities.
Professional indemnity on the other hand responds to liability arising out of your professional activities. For example, if a real estate broker and gave their client the wrong information about the condition of the property which ended up causing them to overpay, that client could sue. In this situation, the professional indemnity insurance policy would be the one to respond.
Let’s sum this up with an example that clearly illustrates the differences between the two. Let’s say you ran a law office and a client came in for a meeting and slipped on the wet floor in your office. In this case, your public liability insurance would be the one to respond. If that same client had an issue with the way you drafted their contract causing them financial loss and they sued you, your professional indemnity policy would be the one to respond.
Is professional indemnity insurance the same as employers’ liability?
No, a professional indemnity policy responds to protect the insured against liability arising out of professional activities (i.e. a lawyer giving legal advice) whereas employers’ liability responds to protect employers (the insured) against liability arising out of employee injuries.
In Hong Kong, if an employee is injured while in the course of their work duties, their employer is generally liable for their injuries and responsible for paying their medical bills, lost wages, etc.
In summary, professional indemnity insurance is meant to protect clients whereas employers’ liability protects employees.
What is the difference between insurance and indemnity?
Indemnity simply means to compensate someone or to “make someone whole”. Insurance is one of the ways individuals and businesses can achieve indemnity.
For example, if your house burns down and you have home insurance, the insurance company will “indemnify you” by paying to repair or rebuild the house. Similarly, if you are sued by a client who alleges negligence in providing professional services, your professional indemnity insurance company will step in to indemnify you. They will pay to defend you in court (i.e. lawyers’ fees, expert witnesses, court bonds, etc.) and pay any damages you’re legally required to pay to the victim.
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