Professional Indemnity - General Liability: What's the Difference?
Isn't Professional Indemnity insurance the same as General or Public Liability insurance? At exali, we often hear this question because there are some misconceptions about the subject. In this article, we will look at why it is so important to examine the risks insured and what exactly is the difference between Professional Indemnity and 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.
In order to cover the professional risks of freelancers, self-employed and companies as comprehensively as possible, we at exali recommend Professional Indemnity Insurance, which includes both Financial Loss Insurance and General Liability Insurance.
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.
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:
An analysis of more than 500 exali damage events shows that only about 12 percent of reported claims were property damage - the rest were financial losses.
This article summarises the risks you should always be aware of as a freelancer - regardless of what you do or the sector you work in: 5 Business Risks Freelancers Should Know About
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
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.
Especially in digital professions, there is a high risk of causing purely financial damage (financial loss) in the event of a professional error. Examples of such losses are
- Programming errors
- Design or layout errors
- Missed deadlines for the delivery of a project
- Faulty analysis (e.g. location or competitor analysis)
- Errors in software
- Use of image or sound content on your own website or social media without the consent of the copyright holder (copyright infringement)
- Errors in the imprint or terms and conditions on your own website (competition infringement)
- Incorrectly setting up a Google Ad campaign
- Incorrect information in a text
- Misquoting in a text, video or podcast
However, even in the IT industry, property damage and personal injury do occur, such as damage to a client's office, accidents when using drones for filming, or an IT service provider accidentally setting fire to a snow plough.
In order to comprehensively cover the risks of freelancers, the self-employed and entrepreneurs, Professional Indemnity Insurance through exali always consists of two components: Financial Loss Insurance, which covers purely financial losses, and General Liability Insurance, which covers property damage and personal injury. Professional Indemnity Insurance through exali is available for the following sectors
- IT, Telecommunications and IT Engineering
- Creative professionals such as graphic designers, copywriters, bloggers or content creators, as well as advertising and online marketing agencies.
- Business consultants, coaches, headhunters, etc.
- Service providers such as virtual assistants, fitness trainers, appraisers, etc.
Do you have any questions about Professional Indemnity Insurance through exali, the risks covered or claims? Then please contact our customer service on +49 (0) 821 80 99 46-0 (availability: Monday to Friday from 09:00 to 18:00 (CET)) or use the contact form to send us a message.
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.
Daniela has been working in the areas of (online) editing, social media and online marketing since 2008. At exali, she is particularly concerned with the following topics: Risks through digital platforms and social media, cyber dangers for freelancers and IT risk coverage.
In addition to her work as an online editor at exali, she works as a freelance editor and therefore knows the challenges of self-employment from her own experience.