Indemnity insurance (also known as professional indemnity (PI) insurance) covers somebody qualified to do a job against any claims that are made against their professional duty of care by a third party. This is in contrast to the general duty of care that everyone is obliged to take (for example, making sure a customer doesn’t get injured on your premises) which would be covered by public liability insurance if something were to go wrong.
If you are considered an expert in your field and provide professional paid services to clients (for example as a personal trainer, freelance graphic designer or private tutor) you have a professional duty of care to provide a certain level of service. There is always a risk that an allegation could be made that you haven’t done this and a claim could be made against you. Indemnity insurance will cover the associated legal costs and any compensation payments.
If you work in certain industries or as a contractor, consultant or freelancer – your association, regulatory body or client might insist that you have indemnity insurance. Most indemnity insurance policies are written on a ‘claims made’ basis, meaning that you must keep your policy running regardless of when an incident took place for it to be covered by the insurance. Limits are made on claims either by ‘aggregate’ (this will be the total amount you are covered against in a single or multiple claims in the insurance period) or by ‘any one claim’ (the amount you are covered for per claim). ‘Run off’ cover insures against claims made against you after your business has ceased trading (even after it’s been sold or you have retired for example).