When Does Professional Indemnity Insurance Pay and When Does It Not?
In this article, we dispel old myths and take a closer look at when Professional Indemnity pays, which exclusions apply, and the key rules you should be aware of.
When does Professional Indemnity Insurance pay?
Your professional indemnity insurance steps in if, in the course of your self-employed work, you cause damage to a third party. Those affected can hold you liable for this professional mistake. In such a case, the insurer will review the claim: if it is found to be valid, they will cover the amount of the damages; if the claim is unfounded, they will defend you against it on your behalf.
Does Professional Indemnity cover negligence?
To answer this question, we first need to clarify what “negligence” means: you caused damage unintentionally. If different conduct could have prevented the damage, negligence has occurred. A Professional Indemnity through exali covers you precisely in these situations.
You can find out exactly what constitutes negligence and the different levels of it here: Negligence: What Professional Indemnity Covers.
When does Professional Indemnity Insurance not pay?
Like any other insurance, a Professional Indemnity cannot cover every conceivable type of damage at a predictable cost. The following exclusions may apply:
Deliberate intent
If you cause damage with full intent, professional indemnity insurance will not cover it.
Industry-specific exclusions
Depending on the industry you work in, your coverage may be subject to further exclusions. At exali, the so-called “All Risk Coverage” applies. This means: if an activity falls within your professional field, it is covered – it is only excluded if the policy terms explicitly state so. For example, if you work in the IT sector, personal injury and property damage resulting from the delivery or performance of weapon systems are excluded. Our recommendation: before taking out your policy, take a close look at this point to realistically assess the scope of coverage. You can find further exclusions in this overview or as a final list in your policy terms and conditions.
Breach of obligations
When taking out an insurance policy, there are certain rules of conduct (obligations) you must follow. If you breach these duties, you risk losing your insurance coverage entirely. In such cases, the insurer may refuse to pay or only cover parts of the claim.
The most important obligation is to report the damage immediately upon becoming aware of it. If you only report a claim months after it occurred, or even incur (unnecessary) costs by making compensation payments on your own initiative, there is a risk that your Professional Indemnity will not step in. This is because your Professional Indemnity Insurance will only cover costs incurred under the insurer’s instructions.
When will your Professional Indemnity really protect you?
A Professional Indemnity provides valuable protection for your business – but it does come with a few rules:
- Read the policy terms carefully so you are aware of all exclusions and can ensure the right protection for your business.
- In the case of a damage event: notify your insurer immediately and stay in contact. This way, you avoid unnecessary costs and make sure you won’t have to bear the financial consequences on your own.
If you follow these points, there is a good chance that your Professional Indemnity Insurance will cover the full amount of your loss.
Vivien Gebhardt is an online editor at exali. She creates content on topics that are of interest to self-employed people, freelancers and entrepreneurs. Her specialties are risks in e-commerce, legal topics and claims that have happened to exali insured freelancers.
She has been a freelance copywriter herself since 2021 and therefore knows from experience what the target group is concerned about.
