When Does Professional Indemnity Insurance Pay and When Does It Not?
‘Will my insurance company pay when I need it?’, ‘What reasons are there for my insurance not to pay?’ Many policyholders ask themselves these questions and are unsure about the reasons for exclusion by insurance companies. Today we want to deal with this issue relating to professional indemnity insurance. When does it pay and when does it not?
When Does Professional Indemnity Pay?
In general: Professional indemnity insurance takes over when self-employed persons or companies cause damage to someone else (a third party, for example the principal) in the course of their professional activity and the latter therefore demands compensation. In this case, the insurance company will pay the compensation and, if applicable, the costs of defending against unfounded damage.
Special Case of Negligence
But what if I acted negligently? Will the insurance even pay? Many people worry about this when a damage event occurs. However, these are unfounded, because professional indemnity insurance only excludes damage that was caused intentionally. In other words, when a third party is deliberately (knowingly / willingly) harmed. This is also logical, because self-employed individuals or entrepreneurs can theoretically only cause damage if they make a mistake - i.e. act with either slight or gross negligence from a legal point of view.
The exception: In the case of gross errors, professional indemnity insurance may not or only partially take over the damage (so-called gross negligence ), for example in the event of violation of rights. Self-employed professionals should therefore pay attention to this criterion when choosing an insurance. We can give the all-clear for professional indemnity insurance through exali: They do not exclude gross negligence in the event of infringements of rights (for example, trade mark, domain, license, copyright, name and personal rights).
Some professional indemnity insurances exclude gross negligence for certain service areas. It is worth taking a closer look at the insurance conditions! A difference is made between
Slight / Minor Negligence: Someone acts slightly negligently if he neglects the due care required in (business) dealings.
Gross Negligence: Anyone who violates or neglects the due diligence required in (business) dealings to a particularly serious extent acts with gross negligence.
The boundary is fluid and in practice it is decided case-by-case whether it is a matter of slight or gross negligence.
Attention: Liability in the event of gross negligence cannot be excluded by the general terms and conditions! It is therefore all the more important that gross negligence is also insured and that the insurance takes over in these cases.
When Does Professional Indemnity Insurance Not Pay?
As with any insurance, there are also reasons with professional indemnity insurance why it may not pay in a damage event.
Possible exclusions - also known as risk exclusions - play an important role. An insurer cannot insure unlimited amounts of damage at a calculable price. The following exclusions can apply:
In the event of intent or malice aforethought, i.e. damage caused intentionally, no insurer will pay for damages. The same applies to professional indemnity insurance.
Malice aforethought or intent in civil law is defined as someone knowingly and willingly causing damage. A policyholder is therefore not insured if they deliberately harm a customer, for example by taking a website offline because the customer is in arrears with payment.
- Industry-specific Exclusions
There are also other usual exclusions, depending on the industry in which the insured person works. In the IT industry, for example, personal injuries and property damage caused by deliveries and services for weapon systems are excluded. It is therefore important to take a look at the exclusions in the insurance contract before taking out professional indemnity insurance.
exali Tip: Even if there are risk exclusions in every professional indemnity contract, you should make sure that these are listed transparently in the insurance conditions and, ideally, in one place. Insurance terms and conditions exist that have placed the exclusions in many different parts in the text. In part, these are even spread across the general and the special insurance terms. This makes it more difficult to see all exclusions at a glance and to assess the scope of the insurance.
Breach of Obligations
When concluding insurance contracts, there are certain rules of conduct (obligations) that the policyholder must comply with. If they violate these obligations and duties, there is a risk of loss of insurance coverage in the worst case and the insurer may not pay or only partially pay in a damage event.
The most important obligation is to report the damage ‘immediately upon becoming aware of it’. Even if it makes sense to inform the insurer of a claim as early as possible, in practice we often find that claims are only reported months after they have occurred. In some cases, policyholders involve lawyers, incurring high costs and at times even pay for compensation - without the insurer knowing about the damage and being able to provide support with experts and lawyers. It then makes sense if the insurer does not cover unnecessary costs.
We have also found that in the ‘heat of the moment’, policyholders can quickly get carried away by making payments to their plaintiffs (or waiving their fees) which, after a professional examination of the liability situation, turn out to be unjustified.
Coordinate the Appointment of a Lawyer With the Insurer
In this context, one point is very important that is not found in the obligations but in the insurance conditions. According to the motto ‘who pays, decides’, in a damage event, professional indemnity insurance only covers costs that are incurred at the instruction or instigation of the insurer. This particularly concerns the costs of hiring lawyers or experts, which must be agreed with the insurer in advance. Costs for a lawyer who has been hired without the consent of the insurance company can be rejected. It is also a good idea to coordinate the appointment of a lawyer beforehand with the insurer, since a specialised lawyer is particularly important in IT and media law.
Do Everything Right When Choosing
As with any other insurance, there are certain circumstances with professional indemnity insurance that prevent a payment in a damage event. There are many things that you can do right preventively by choosing the right coverage. Choose an insurance with the most open scope of insurance (so-called blanket coverage for your profession), exclusions that are presented transparently and without restriction of benefits in the event of violations of rights in the event of gross negligence.
With Professional Indemnity Insurance for Digital Professions through exali this is the case and in a damage event exali is available to answer any and all questions related to your duties as the policyholder. At exali you always have a competent contact person and can clear up misunderstandings beforehand. In a damage event, this also means: We will take care of it.
Calculate your premium and get your professional indemnity insurance online in just a few steps here:
Who am I?
After a traineeship and a few years in corporate communications, I now work at exali as editor-in-chief of the online editorial department and am responsible for all content.
What do I enjoy?
Summer, travel, good food and football.
What do I dislike?
Travel by train, Brussels sprouts and slime.