Professional indemnity insurance covers the cost of claims that your professional advice, service or work was negligent, inadequate or caused a client financial loss. Where public liability deals with physical injury and property damage, professional indemnity deals with mistakes in what you advise or produce. Any business that gives advice, handles client data, or delivers a professional service carries the exposure, and for some professions the cover is mandatory.
The defining feature of professional indemnity is that it responds to economic loss caused by a professional failing, rather than physical harm. A missed deadline, a flawed design, negligent advice, or a breach of professional duty can all trigger a claim even where nobody was injured and nothing was physically damaged.
What does professional indemnity cover?
It covers your legal defence costs and any damages where a client alleges you were negligent, made a mistake, gave poor advice, breached a professional duty, or caused them financial loss through your work. Most policies also extend to related exposures such as breach of confidentiality, loss of documents or data, and defamation, though the exact scope varies by wording.
Who needs professional indemnity insurance?
Anyone whose clients rely on their expertise: consultants, accountants, solicitors, architects, engineers, surveyors, designers, IT contractors, marketing agencies and many others. For several regulated professions it is compulsory. Solicitors, accountants, architects and financial advisers, among others, are required by their regulators to hold professional indemnity cover to defined minimum terms.
How is professional indemnity different from public liability?
The two answer different risks. Professional indemnity covers financial loss from your advice or service; public liability covers physical injury or property damage. A consultant who gives negligent advice faces a professional indemnity claim; the same consultant who injures a client’s employee on site faces a public liability claim. Advice-led businesses often need both. Our guide on professional indemnity vs public liability covers the distinction in detail.
What is a claims made policy?
Professional indemnity is almost always written on a claims-made basis, meaning the policy that responds is the one in force when the claim is made against you, not the one in force when you did the work. This matters when you change insurer or stop trading: cover has to be maintained continuously, and run-off cover may be needed after you cease, because a claim can arrive years after the work was done.
How much professional indemnity cover do I need?
Cover is written to a limit of indemnity, and the right level depends on the size of the contracts you handle and the potential loss if your work goes wrong. Regulated professions have minimum limits set by their regulator; others are often guided by client contracts, which increasingly specify a required level. The limit should reflect the largest loss a client could realistically suffer.
Where professional indemnity claims come from
A professional indemnity claim starts when a client says your work cost them money. The allegation does not have to be right for the cost to be real: defending a weak claim still takes time, experts and lawyers. These are typical sources of claims by profession:
- Architects and designers: a detail that lets water in, a design that breaches building regulations, or drawings that miss a planning condition, leading to remedial works and delay.
- Engineers: an undersized structural element or a services design that does not perform, discovered after the building is occupied.
- Accountants and bookkeepers: a missed filing deadline that triggers penalties, or tax advice that leaves a client with an unexpected liability.
- Surveyors: a survey that misses a defect, or a valuation a lender later says was too high.
- IT contractors and developers: a data migration that corrupts records, or software that fails and stops a client trading.
- Marketing agencies and publishers: a campaign that uses an image or wording without the right permissions, or a statement about a competitor that is alleged to be defamatory.
What professional indemnity usually does not cover
Wordings differ, but these exclusions and restrictions are common:
- Known claims and circumstances: anything you knew about, or should have known about, before the policy started.
- Work before the retroactive date: if the policy has a retroactive date, work done before it is not covered.
- Contractual promises beyond the law: guarantees, warranties, fitness for purpose obligations, liquidated damages and penalties you agree to in a contract, to the extent they go beyond what you would owe anyway.
- Fee disputes and trading debts: a client refusing to pay your invoice is not a professional indemnity claim.
- Fines and penalties imposed on you directly.
- Injury and property damage: usually left to public liability, though some wordings for design professions cover injury or damage caused by a professional error.
- Cyber incidents: your own costs after a hack or data breach. See our guide to cyber insurance.
- Territory and jurisdiction: work for clients in the USA or Canada, or claims brought in their courts, is often excluded or restricted.
What affects the cost of professional indemnity insurance
Insurers look at how likely a claim is and how large it could be. The main factors are:
- Your profession and the split of your fee income by type of work. Some activities, such as structural design or tax planning, are rated higher than others.
- Your total fee income, and the size of your largest contracts.
- Where your clients are based, especially any USA or Canada exposure.
- Your claims history and any circumstances you have notified.
- Your qualifications, experience and membership of a professional body.
- Your contract terms, including whether you cap your liability to clients.
- The limit of indemnity, whether it applies per claim or in the aggregate, and the excess.
Under the Insurance Act 2015, you must make a fair presentation of the risk before the policy starts, which means disclosing every material circumstance you know or ought to know. A complaint from a client, even an informal one, is often something an insurer would expect to hear about.
Choosing a limit and reading contract requirements
Limits of £1 million, £2 million, £5 million and £10 million are common starting points, with higher limits available. Two features of the limit change what it is worth:
- Any one claim or aggregate. An any one claim limit is available in full for each separate claim. An aggregate limit is the most the policy pays for all claims in the period.
- Costs inclusive or costs in addition. If defence costs are inside the limit, they reduce what is left for compensation.
Client contracts often set the limit, the basis and how long you must keep cover after the work ends. In England and Wales, a claim for breach of a simple contract generally has six years from the breach, and a contract signed as a deed has twelve. For negligence that causes hidden damage, the Limitation Act 1980 allows three years from when the claimant knew, where that ends later than the usual six years, subject to an overall long-stop of fifteen years from the negligent act. Because cover is claims made, you need a live policy throughout that period.
How a professional indemnity claim works
- Notify early. Tell your insurer or broker as soon as you become aware of a complaint or a mistake that could lead to a claim, not just when a formal claim arrives. A properly notified circumstance attaches to the policy in force at the time.
- Do not admit liability or offer compensation. You can correct an error and keep working with the client, but agree the approach with your insurer first.
- Preserve your file. Keep emails, drawings, advice letters, meeting notes and version histories.
- The insurer takes control. They appoint solicitors and, where needed, an expert in your profession to review the work.
- Response to the letter of claim. Your solicitors respond, challenge the allegations or the amount, and explore settlement.
- Settlement, mediation or court. The insurer decides whether to settle, mediate or defend, and pays compensation and costs up to the limit. You pay the excess, which may apply to costs as well as compensation depending on the wording.
Worked examples
These scenarios are hypothetical and simplified.
An accountant and a missed deadline. A bookkeeper forgets to file a client’s return. The client receives penalties and interest and asks the bookkeeper to pay them. The policy can respond to the client’s financial loss, subject to the excess.
An architect and a leaking roof. Two years after completion, the owner of a house extension finds water ingress at a roof junction. They allege the detail was badly designed. The architect notifies the insurer as soon as the first email arrives, and an expert is appointed before any legal claim is made.
Looking for professional indemnity insurance?
Tell us what your business does and we will look for cover that fits. Call 01795 841 310 (Monday to Friday, 9am to 5pm) or send us your details and we will come back to you.
Frequently asked questions
Do freelancers and sole traders need professional indemnity insurance?
Often, yes. A freelancer’s advice or work can cause the same loss as a large firm’s, and clients increasingly ask freelancers for proof of cover before they sign. Unless your profession requires it, it is your choice.
What is a retroactive date?
It is the date from which past work is covered. Work done before it is not covered, even if the claim arrives while the policy is live. Keeping cover continuous preserves your retroactive date when you renew or change insurer.
How long should I keep run-off cover after I stop trading?
There is no single rule. Many professionals look at the limitation periods and their contracts, with six years a common choice. Some regulators set their own run-off requirements.
Does professional indemnity cover a client refusing to pay my fees?
No. Chasing unpaid fees is a commercial dispute. If you sue for fees and the client counterclaims that your work was negligent, the counterclaim may be covered.
Does professional indemnity cover data breaches?
Partly. It can cover a client’s claim that you mishandled their confidential information. Your own costs after a breach, such as forensic investigation, notifying affected people and lost income, belong under cyber insurance.
Getting the cover right
Professional indemnity wordings vary widely, particularly on the claims-made trigger, run-off and the definition of your professional business, and the right limit depends on your work and your contracts. A broker can match the wording and limit to your exposures and make sure continuity is maintained when you renew or change insurer. To arrange or review professional indemnity cover, call 01795 841 310 or speak to the team.