Professional Indemnitiy for Digital Professions
FAQs on Professional Indemnity Insurance for Digital Professions: General
Professional Indemnity for Digital Professions is an industry-specific liability insurance for freelancers and self-employed people from the IT, media and consulting industries based on the principle of all-risk coverage.
In order to provide comprehensive protection against liability risks in everyday work, Professional Indemnity Insurance for Digital Professions includes the following insurance modules:
- Financial loss liability insurance
- General liability insurance:
- Insurance for first party claims and breach of trust
First-party Claims Insurance
In addition to damage to third parties (e.g. customer or principal), certain personal damages (property and financial damage) is also insured through professional indemnity insurance for digital professions, such as
- changing or blocking your own website (e.g. hacking damage)
- restoring lost, own, written documents for processing orders
- costs for loss of your own domain caused by a third party (domain legal protection)
Optional Add-on Module
There is an optional add-on module so the insurance coverage can be flexibly adapted to each business model.
- First-Party Cyber and Data Risks Insurance (FPC)
The insurance coverage generally includes the fulfilment of justified and the defence against unfounded liability claims (so-called passive legal expenses insurance).
In indemnity insurance, this describes the maximum amount up to which the insurer must pay in a damage event. In the insurance conditions of Professional Indemnity Insurance for Digital Professions, the covered sums are also referred to as sum insured. Since companies, self-employed peopke and freelancers as well as private individuals have unlimited liability in most cases, this represents a significant risk not only for the policyholder, but also for the insurer.
The risk becomes calculable for the insurer by agreeing abstract maximum performance limits, so-called coverage sums. In other areas, for example with a household contents insurance, the maximum damage (= the entire household contents at replacement value) can be measured very specifically. Here one speaks of a sum insured and not an (abstract) coverage sum.
In indemnity insurance, coverage is usually indicated separately for personal injuries, property damage and financial losses. However, the insurer can also provide a lump sum coverage, e.g. for personal injuries and property damage (c.f. “3. Lump sum coverage" and "4. Maximizing the coverage").
The annual maximum benefit defines the maximum benefit obligation of the insurer for all insured events in an insurance year. The maximum annual benefit is calculated by multiplying the sum insured according to the agreed maximization (cf. point 4), whereby only one of the two correspondingly marked coverage amounts is used as the basis for calculating the maximum annual benefit for the coverage sums marked as "lump sum".
In the case of lump-sum coverage (to be assessed as a whole), the claims payments for the individual types of damage are summarised. The maximum claim payment per loss event is limited to the amount of the stated insured sum. And this is regardless of whether, for example, property damages or financial loss has occurred. Example:
- Insured amount for personal injuries at 5.000.000 euros (lump sum)*
- Amount of coverage for property damages at 5.000.000 euros (lump sum)*
- Amount of coverage for financial losses at 1.000.000 euros
The coverage amounts are tripple aggregated per insurance year.
*You can also find this overview in the insurance policy for Professional Indemnity Insurance for Digital Professions: Insured sum for personal injuries and property damage, lump sum in the amount of 5.000.000 euros
The coverage amounts are generally available for each damage event. However, the total benefit provided by the insurer for all damage events in an insurance year is usually limited to three times the insured sum, so-called triple aggregation (see also point 3).
Example: Agreed coverage amount 1 million euros (triple aggregation)
=> Per damage event, the insurer pays max. 1 million euros for all damages in one (insurance) year but a maximum of 3 million euros.
Professional Indemnity Insurance for Digital Professions offers triple aggregation of the coverage amounts or insured sums for financial loss as well as personal injury and property damage.
Personal injury is a damaging event that results in death, injury or damages the health of people. This also includes the economic consequences of insured personal injuries (so-called consequential personal injury), including costs for loss of earnings while taking into account economic progress, default for support and maintenance payments (provider damage) and immaterial damages (satisfaction).
"Property damage" in the sense of indemnity insurance is understood to be the damage to material or the destruction of things. Pecuniary damage is to be distinguished from this, as it covers purely financial losses, such as lost profit and is thus not considered property damage. As long as no lump sum coverage (see point 2. "Lump sum coverage") is agreed, there is usually a separate coverage amount for property damage.
Financial loss refers to situations in which neither a person nor a thing suffers direct damage, but financial loss is caused to another person through culpable behaviour. A distinction is made between “pure” financial loss and property damage or consequential damage to persons as consequential financial loss.
- Pure financial loss (example): By accidentally deleting a call centre's database the employees are unable to go about their jobs. The effort involved in retrieving the information as well as the downtime until the reconstruction of the database causes considerable costs.
- Consequential financial loss (personal injuries / consequential damage to property): In the case of consequential damage, however, the financial loss only arises due to the damage to a thing. An incorrect connection of several hardware components causes overheating and thus damages a newspaper printing press. If this means that the next newspaper issue cannot be printed and delivered on time, this thus results in further financial loss (in this case as consequential property damage).
Binding definition in the conditions of exali.com’s professional indemnity insurance:
In order to avoid delimitation problems, we define the financial loss in the conditions of Professional Indemnity Insurance for Digital Professions as follows:
‘Financial loss is damage that is neither personal injury (killing, injury to the body or damage to the health of people) nor property damage (damage, spoilage, destruction or loss of things, in particular money and pecuniary symbols), nor does it result from such damage. The loss, modification or blockage of electronic data is also considered to be financial loss.’
Unfortunately, it is not possible for exali.com to speak for the entire European insurance market, because among other things - for understandable reasons - not all claims are made public. We can give you an example from the winter of 2006, based on our experience and many years of cooperation with specialty insurers for the IT, media and consulting sectors. Here, the claim by a damaged logistics company due to an IT failure amounted to 1.4 million euros!
In another interesting case, the policyholder developed a new billing function for a large mobile network provider. Despite a comprehensive simulation beforehand, a misconfiguration was overlooked. The result: Customers were only billed for part of the actual time used. The mobile phone provider suffered damages amounting to 470.000 euros due to lost profits.
Based on the example we have given, no conclusions can be necessarily drawn about damages for each area. Since we do not know your fields of activity, this example may not be "typical" for you, but it may at least provide food for thought.
Sublimits are underinsured amounts. That means, the insurer reduces the sum insured or the sum insured for certain co-insured partial risks (e.g. violation of rights, IT property damage, processing damage, rental property damage etc.) in the contract.
Note: In our opinion, a professional liability insurance should not include any sub-limits for reasons pertaining to benefits and transparency.
- In the Professional Indemnity Insurance for Digital Professions, there is therefore only one sub-limit in the area of liability, namely 100,000 euros for the extra added coverage of patent infringement.
- In the field of first-party claims insurance (FPC) and the add-on modules, there are sub-limits, such as 300.000 euros when access to your own site is blocked.
In a damage event, the insurer involves the policyholder, i.e. the self-employed or freelance person, in the resulting claims expenses. This is done in order to pass on minor damages and to include the insured person in the responsibility for the costs incurred. This means that insurance premiums can be set at a cheaper rate.
The fixed deductible in Professional Liability for Digital Professions is 250 euros per damage event.
Deviating Deductibles for the Optional Add-on Module
First-Party Cyber and Data Risks Insurance (FPC)
The deductible for costs and additional costs is 1.000 euros per damage event.
We use the term professional indemnity as an umbrella term in order to take into account the consistent orientation of the insurance towards activities in the IT, media and consulting sectors.
Components of Professional Indemnity Insurance
1. Financial Loss Indemnity or Professional Indemnity Insurance
Our Professional Indemnity Insurance for Digital Professions essentially consists of two types of insurance or insurance modules. The most important component, which insures the professional risks of freelancers and the self-employed, is called financial loss indemnity. Therefore, professional indemnity insurance is in principle to be assigned to financial loss indemnity insurance.
Since the synonym professional indemnity insurance is also used for the coverage of financial loss indemnity insurance for freelance professions (e.g. authors, photographers, etc.), Professional Indemnity Insurance for Digital Professions is also referred to as professional indemnity insurance for freelancers and self-employed persons.
2. General Liability Insurance
Professional Indemnity Insurance for Digital Professions also insures personal injury and property damage resulting from the operation of an office and work on site at the principal. This insurance component is called general liability insurance.
Deselection of General Liability Insurance
The general liability insurance module can be deselected in the premium calculator. We only recommend doing so, however, if you already have existing generalliability insurance. In the long term, however, you should integrate general and personal liability insurance into Professional Indemnity Insurance for Digital Professions.
Professional Indemnity Insurance for Digital Professions combines the following insurance components described above:
- Financial loss indemnity insurance for the protection of pure financial losses
- General liability insurance for the protection of personal and property damage as well as consequential financial loss
“Passive legal expenses insurance” means that Professional Indemnity for Digital Professions reduces the cost risk for defending against unjustified claims as well as for professional claims settlement by assuming out-of-court and court costs (e.g. lawyer, expert, witness, court, travel costs).
In the digital sector, “passive legal expenses insurance” is particularly important for claims in connection with the violation of third-party rights (such as copyrights, personal rights, names, trademarks and licensing rights). The insurer also grants temporary defence protection in the event that damage is caused intentionally.
“Passive” in this context means that the service relates to the defence of third-party claims (e.g. of the principal) and not to the “active” enforcement of one's own claims.
Legal Protection in Criminal Cases
If criminal proceedings arise in connection with a damage event, the insurer will also cover the necessary legal and court attendance expenses. The compensation limit is 250.000 euros per insured event.The costs for claims settlement or defence are paid by the insurer in addition to the sum insured sum/sum covered (limit of benefits), as long as this sum is not exceeded in the compensation payment. If the liability claim exceeds the agreed upper limit, the insurer only bears the costs to the extent that they would have been incurred in the event of a liability claim in the amount of the upper limit. In the case of claims before courts in the United States and Canada, the costs are limited to the sum insured/sum covered.
Professional Indemnity Insurance for Digital Professions covers you in general against claims for compensation by “third parties” (e.g. clients or customers) if you are held responsible for personal, property or financial loss from your work due to statutory liability provisions.
The Four Central Service Areas of Professional Liability for Digital Professions Are
Review of Claims
Examination of whether and to what extent the freelancer is obliged to pay compensation.
Compensation for Damages
In the event of a justified claim for compensation, payment of the compensation (up to the agreed sum insured minus any agreed deductible).
Professional Defence Against Compensation Claims (at the Expense of the Insurer)
So-called “passive legal expenses insurance” (see also point 12): Defence (i.e. out-of-court or court disputes) against unjustified or excessive claims for compensation as well as warnings or omissions. If necessary, professional indemnity insurance will also cover a liability-related legal dispute for you in the event of a damage event and assumes all procedural costs incurred (lawyer, court, expert, and witness costs).
This also applies to possible criminal proceedings (criminal legal protection).
Minimise the Entrepreneurial Risk of First-party Claims
With the included first-party claims insurance and the optional First-Party Cyber and Data Risks Insurance (FPC) add-on, professional indemnity insurance significantly reduces the entrepreneurial risk for digital occupations.
If you choose a contract term of only one year for your Professional Indemnity Insurance for Digital Professions, you retain maximum flexibility.
If you choose a three-year contract, you limit your flexibility, but receive a term discount of 10% per year.
It is difficult to make a specific recommendation here from our point of view. Everyone should decide for themselves to what extent they are willing to forego maximum flexibility in favor of a lower premium.
This contract is subject to the law where the policyholder has their permanent place of legal domicile/residence. Additional regulations on the applicable law are agreed upon in the country-specific supplementary agreement.
Jurisdiction for Legal Actions Against the Insurer
- Lawsuits against the insurer from the insurance contract may be filed at the court with local jurisdiction over his legal domicile or the legal domicile of the branch office that administers the contract.
- Where an insurance broker has brokered or concluded the contract, the court of the place at which the broker had his business location or, in the absence of such, his residence at the time the contract was brokered or concluded, shall also have jurisdiction for lawsuits filed against the insurer from the insurance contract.
- With respect to lawsuits from the insurance contract or insurance brokerage, the court in whose district the policyholder has his permanent place of residence/legal domicile or (in the absence of such) his habitual place of abode at the time the lawsuit is filed shall also have local jurisdiction.
Jurisdiction for Legal Actions Brought by the Insurer
With respect to lawsuits directed against the policyholder, the court in whose district the policyholder has his permanent place of residence/legal domicile or (in the absence of such) his habitual place of abode at the time the lawsuit is filed shall have exclusive jurisdiction.