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Are You Insured?

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Are You Insured?

A note of advice on Professional Indemity Insurance from Allan Henderson of Rothbury Insurance Brokers, Wellington.

Professional Indemnity Insurance is a must for any business or contractor where advice is being given. We strongly recommend that you engage an insurance expert to help identify and cover risks that you may be liable for as either a contractor, or that your employer may be liable for. As part of a professional indemnity policy it is important that your policy has an Employment Disputes extension (either included or as an optional extra). It seems we are seeing more and more cases in the media where employees are lodging personal grievance claims against their employers. The costs involved in defending such claims and, where applicable, the payment of costs to that employee can certainly add up and affect a business regardless of size. The majority of claims (69%) under these types of policy are Employment Dispute type claims.

So What Is Professional Indemnity Insurance?

Professional Indemnity policies respond in the event that your business faces legal action for a failure in providing professional advice and insures against actual or alleged breaches of duty, acts, errors or omissions, mis-statements, breaches of confidentiality etc. The cover is wide-ranging and can be tailored to suit contractor or company needs. At times it is easier to show the value of such cover in actual examples:

Confidentiality Breach –  An employee of a business allegedly gave private information to a third party. The Privacy Commissioner made a finding that there were no breaches under certain principles of the Act. However, the legal fees for the case were $9,000 which were met by the businesses insurer.

Employment Disputes Cover – An employee alleged wrongful dismissal and lodged an action with the Employment Relations Authority (ERA). This was defended in court and the ERA found in favour of the employee. The total costs of the claim (including legal fees of $38,000) was close to $80,000.

Copyright Breach – Information from a third party that owns copyright for a particular document was used by an insured. By using this information the insured was found to have deprived the copyright owner of income. The outcome was that the insured had to pay the third party $200,000 (which was covered under the policy) as well as $100,000 legal costs.

The above examples highlight the need for members, as professionals who give advice, to hold Professional Liability insurance in order to protect themselves from what could be financially devastating claims.