Many consultants or contractors make the common mistake of thinking they are automatically covered under the principal’s professional indemnity policy. When we use the term ‘principal’, we’re referring to the company who engages the consultant to do work for them. A word of warning, any professional working on a contract basis shouldn’t assume that the principal is covering them. Furthermore, it’s not always in the principal’s best interests to cover the contractor or consultant. For example, a claim may begin with the principal being sued, however it may not finish there. That’s because the principal (or their insurer) may want to seek to join the contractor as an additional party to the claim. In a way, the principal is protecting their position and seeking to transfer the liability to the contractor. Alternatively, as a consultant you may not exercise the required level of care and instead it’s the principal suing you.
For a contractor or freelance professional the best way to mitigate or control the risks is to buy PI insurance. If you are still not sure you need PI insurance, then we recommend checking our some of our previous articles:
· How do you figure out who needs Professional Indemnity Insurance?
· Why do I need Professional Indemnity Insurance?
· Is Professional Indemnity Insurance compulsory or a legal requirement?
Okay, by now you should understand that as a consultant or contractor you must have your own professional indemnity insurance. But what limit of indemnity do you need?
Three things to check before deciding how much PI to buy.
1. First and foremost, if you make a mistake what would be the cost to rectify the problem? Take into consideration that the client may not want to use you to fix the problem. Instead they may choose to engage an alternative consultant. When considering the potential claim cost don’t just think about the work you are responsible for. Think about the flow on effects a mistake would have for both your client and more importantly their clients.
2. Check your contract with the principal closely to see if it has an indemnity or insurance clause. If so, does the insurance clause stipulate a minimum PI indemnity limit? If the contract doesn’t specify an amount, contact the principal to see what is acceptable before purchasing PI insurance.
3. Examine the contract to see if there is a minimum number of years you need to hold cover for. Remember, your PI insurance must be current when the claim is made against you. This applies regardless of when the work was done. For more information about this refer to our previous videos and articles;
a. Short term Professional Indemnity Insurance explained.
b. What is Run Off Professional Indemnity Insurance?
In summary, not all consultants, contractors of freelance professionals are the same. Exposures vary and therefore so will the professional indemnity limit required. As a result, consider carefully what limit is right for you.
The great news is that FD Beck has a free online insurance quoting tool tailored for contractors, consultants or freelance professionals. Our online calculator has almost 150 professional occupations to choose from. FD Beck’s online PI insurance calculator offers limits options of $500,000, $1,000,000, $2,000,000 and $5,000,000. Better still, our online calculator includes other products such as Public Liability and Cyber Insurance, just to name a few.
For over 100 years, FD Beck has protected Australians. Rest assured, we have the knowledge and expertise to handle every aspect of your insurance needs.
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