Professional Indemnity Insurance explained – a Guide to PI Insurance Hong Kong
Professional Indemnity Insurance in Hong Kong covers defense costs, the financial settlement, or damages awarded by a civil court. PI insurance may also be referred to as Errors & Omissions Insurance or Medical Malpractice Insurance depending on the industry you are in.
Who is a “Professional”?
A professional is anyone who provides advice or other specified services to clients as a paid occupation. Failure to provide proper advice or professional services can cause your clients to suffer a monetary loss or a bodily injury. When that happens, you may be sued.
Some common examples of professionals include:
- Real estate agents and brokers
- Doctors, nurses, and other healthcare practitioners
- Fitness trainers
- Insurance professionals
- 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. The service offered should meet a certain standard that reflects the specialized training you have received.
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 monetary or physical loss, you can be held liable in court.
Many professions also have governing or licensing bodies that lay out a code of conduct over what is legally required. Failure to operate within these requirements could attract 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: you may 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. These claims may allege either libel (written defamation) or slander (spoken defamation).
- Copyright Infringement: businesses - particularly those in IT or technology - may inadvertently incorporate some intellectual property or other copyrighted works into a project they are doing for a client.
- Breach of Privacy: individuals who handle confidential data (such as medical or recruitment professionals) may be accused of breach of privacy.
What is Professional Indemnity Insurance and What Does It Cover?
This type of insurance in Hong Kong protects you from legal liability for acts of negligence that may be committed in the course of duty. It covers awards arising out of court judgments, loss of documents, fees and expenses incurred in your defense, and more.
- Legal Defense & Court Costs
Meritless claims and lawsuits are quite common. Should you get sued, your Hong Kong PI insurance policy will pay for any costs associated with your court defense. The insurer hires a lawyer for you, covers court expenses, expert witness fees, 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, but winning the lawsuit can also help safeguard your business’s reputation.
- Worldwide Coverage
Most policies will extend your coverage to civil liability arising out of your occupational 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.
- Historical Coverage
Most PI Insurance policies will cover liability arising out of services rendered before the start date of the policy as long as this is negotiated at policy inception. This is usually only offered when switching insurers and is called the Retroactive Date.
- 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 insurance coverage, the insurer will cover 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?
If you’re a professional, the answer is a resounding YES. Some experts 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.
Today’s litigious environment calls for business owners to find ways to transfer some of the risks of doing business. PI Insurance is a great way for entrepreneurs to transfer risk, protect their reputation and ensure the company 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.
Why professional indemnity insurance?
Entrepreneurs need to consider insurance as part of their overall risk management strategy in order to thrive in today’s litigious world. Hong Kong service providers such as insurance brokers, real estate agents, consultants, doctors, engineers, and lawyers are trusted to deliver accurate advice and up-to-standard services. Failure to do this could result in their customers suffering monetary loss or bodily injury. If that happens, many customers will sue to try to recover damages and get compensation. Most PI lawsuits we see these days allege a number of things:
- Negligence or carelessness
- Copyright infringement
- Breach of privacy or confidentiality
Without coverage, your firm could suffer from crippling financial losses (or worse still) by having to pay for damages resulting from these claims. Professional liability insurance ensures that your insurance company will step in to defend you in court and take care of covered damages if necessary.
What level of professional indemnity do I need?
We usually recommend buying as much insurance as you can afford.
The level of coverage you need depends on the terms of your engagement, the risks and potential damage you could cause, and the value of your contracts.
→ Potential Losses: based on your Hong Kong profession, the potential damages can either be extremely high. Lawyers who work exclusively with small clients may not need that much coverage. In contrast, engineers or architects working on billion-dollar skyscrapers (which could collapse due to a design error and injure hundreds or maybe even thousands of people) will need a lot of insurance. As a general rule of the thumb, you will require to purchase more professional indemnity insurance if the type of business you do involves someone’s health or large monetary sums.
→ Contract Value: The larger your client(s) contracts are, the greater the possible financial damage. This means you would need to purchase more insurance (protection) compared to someone working with smaller customers with smaller deals.
→ Final Decision: With the above 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 to help determine the level of professional indemnity that is best suited for you.
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 safeguard 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 cover damages as necessary. One important distinction is that this is a general liability policy and does not include liability arising out of occupational activities.
→ Professional indemnity on the other hand responds to liability arising out of your work-related activities. For example, if a Hong Kong real estate broker gives their client the wrong information about the condition of the house which ends 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 damage 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 customers 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 (including lawyers’ fees, expert witnesses, court bonds, etc.) and cover any damages you’re legally required to pay to the victim.
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