Professional Indemnity - General Liability: What's the Difference?

The Difference between Professional Indemnity or General Liability

The terms Professional Indemnity and General Liability are often used interchangeably by freelancers and the self-employed. However, this is only partly true, because while Public Liability Insurance basically only covers certain risks, Professional Indemnity Insurance is often used as an umbrella term for different types of liability policies. The most important thing is always to look at the scope of the insurance and the risks covered.

Definition of Professional Indemnity Insurance

Professional Indemnity is an umbrella term for different types of liability insurance that cover professional risks. Professional Indemnity Insurance is not a fixed terminology - therefore it is not universally defined which risks this insurance must cover in detail. This means that Professional Indemnity may also include, or even consist only of, General Liability. It is precisely this lack of clarity that often leads to misunderstandings - so you should always check which risks are covered by your Professional Indemnity Insurance.

Definition of General Liability Insurance

General Liability insurance specifically covers bodily injury and property damage caused by freelance or self-employed activities, i.e. by the 'operation' of a business or 'place of business'. If the place of business consists of an office (commercial operation), the term Public Liability Insurance is often used.

What Risks Does Professional Indemnity Insurance Cover?

Basically, the term "Professional Indemnity Insurance" can be seen as the label on a package. In the best case, this package provides comprehensive cover for the professional indemnity risks of freelancers and the self-employed - it is important to check the scope of the insurance, i.e. the contents of the package.

What Are The Most Common Risks For Freelancers And The Self-Employed?

Our experience at exali shows that the majority of reported claims are so-called pure financial losses. An evaluation of the most frequent causes of damage confirms this:

What Is Financial Loss?

Financial loss can be divided into

• Pure financial loss, which is not the result of personal injury or property damage; and
• Consequential financial loss - financial loss resulting from personal injury or property damage - so-called consequential personal injury or property damage (e.g. loss of earnings, loss of turnover due to property damage, etc.).

Especially in professions where work is predominantly digital, such as IT and technology, media and graphics, consulting or services such as virtual assistance, pure financial loss is one of the biggest risks for freelancers and the self-employed. To illustrate this, here are some examples of what financial loss can look like.

Business Risk: Legal Infringements

Around 40 per cent of all losses reported to exali are actually legal infringements - the most common being written warnings for copyright infringement. Competition infringements are the second most common. Other infringements include: trademark infringements and personal rights infringements. We have compiled a comprehensive list of possible infringements and how to protect your business against them in this article: Top 5 infringements and how to avoid them

Business Risk: Non/Poor Performance

The term "poor performance" refers to a service that does not meet pre-defined requirements or expectations. Examples of poor performance include

• Programming errors, as in the case of an IT freelancer who was hired by a sports association to program software for issuing membership cards. Unfortunately, it turned out that the software contained a bug and all the cards were invalid: Programming error causes 23,000 euros in damage
• Errors in advertising, as in the case of an online marketing freelancer who made a mistake in budgeting for a Facebook ad and was faced with a claim for 230,000 euros: Comma error causes Facebook ad costs to explode.
• Consulting errors, such as the one made by a consultant who overlooked the planned opening of a rival company during a location analysis: Business consultant makes mistake in location analysis

Financial Loss Insurance: Coverage for Financial Losses

All these examples show how quickly a small mistake can have expensive consequences. It is important to note that financial loss is generally NOT covered by General Liability insurance - but may be covered by Professional Indemnity Insurance. Therefore, it is important to take a close look at the scope of your Professional Indemnity Insurance.

At exali, we believe that for proper coverage, Professional Indemnity Insurance should always include both elements - i.e. Financial Loss Insurance and General Liability Insurance. For this reason, exali's Professional Indemnity Insurance always consists of both components - for all sectors.

What Risks Does General Liability Insurance Cover?

General Liability Insurance basically covers bodily injury, property damage and any consequential damage. We will show you exactly what risks are covered with some examples from real damage events.

What Is Property Damage?

For the purposes of liability insurance, property damage is the physical damage or destruction of property. It also includes the loss of valuables, in particular money and money's worth. Here are some practical examples of property damage:

Drone Crashes into Car

A marketing agency used a drone to film a promotional video - unfortunately, the drone crashed during filming and landed on a car parked in the outdoor showroom of a car dealership. This is a "classic" case of property damage, i.e. damage to a third party's property. You can read the full case here: Drone crashes over car dealership

Employee Damages Window

An employee of an IT service company pulled the window handle of a roof window a little too bravely and tore it out completely. This is a case of damage to rented property - i.e. damage to rented office space. Read this article to find out how the case turned out: Employee demolishes skylight.

Lost Customer Key

This example does not involve damage to someone else's property, but rather the loss of it: An IT service provider had been given a key to a client's office and promptly lost it while on a pub crawl. The client then had to replace the entire key system. The loss of other people's property is also considered to be property damage for insurance purposes. All the details of the case can be found in the following article: IT Service Provider Loses Customer Keys.

What Is Personal Injury?

In insurance terms, a personal injury is a loss event that results in the death, injury or damage to the health of any person. It also includes the economic consequences of an insured bodily injury ("consequential bodily injury"), such as costs, loss of earnings taking into account economic advancement, loss of maintenance payments (loss of maintenance), as well as immaterial damages (satisfaction). This real damage event illustrates what this can look like:

Programming Error on the Opera Stage

An IT service provider was hired by a stage technology company to program the control software for an opera stage. However, the expert made two serious mistakes: firstly, he failed to test the functions of the entire stage, and secondly, he failed to give comprehensive instructions to the stage technician in charge. As a result, during the next opera performance, the stage tilted too far forward and the singer who was on it at the time fell five metres, suffering several broken bones.

In addition to the cost of the singer's loss of earnings, medical expenses and other civil claims, the IT service provider also faced a criminal prosecution for involuntary manslaughter. Read this article to find out how the case turned out: Singer falls victim to IT service provider's mistake.

In a Nutshell: When Does General Liability Pay?

General Liability insurance covers your business in the event of personal injury or property damage.