Professional IndemnityFAQs

It's the technical core and the reason Professional Indemnity exists. Almost no other liability policy covers it. Unlike material or personal damage, it doesn't arise from prior physical damage: the professional makes an intellectual error, a case of negligence or an omission that directly destroys the client's money or rights, without any physical or material damage involved. That pure financial loss is precisely what the client is claiming for, and what sets Professional Indemnity apart from other liability coverages.

It means the insurance only protects you against errors made in the exact, specific tasks described in the contract, not under the general title of your profession. The policy needs a strict definition of the activity: if you're a web designer but make an error while coding payment gateways — an undeclared task — the insurer won't pay the claim. Accepting the terms described in the policy means that any activity, service or project outside that literal description is technically considered uninsured.

General Liability covers physical or material damage caused to third parties during the company's activity: a customer who's injured on your premises, property damaged during a job. Professional Indemnity covers something different: the financial loss a client suffers as a result of an error in carrying out your professional activity, without any physical or material damage involved.

Not necessarily. In most Professional Indemnity policies, that one million has two dimensions that work independently: the per-claim limit — the maximum paid for each individual claim — and the annual aggregate limit — the maximum paid in total over the whole policy year.

If your policy has a per-claim limit of €1,000,000 and an annual aggregate of €1,000,000, a single claim of that amount uses up both limits at once. Any further claim that year is left uncovered. In entry-level policies, both figures are often identical, and the company doesn't realise it until the second claim arrives.

Before signing, always ask what your per-claim limit is and what your annual aggregate is. They're two different figures with very different consequences. If only one appears in your policy, ask what the other one is.

Yes, with some nuances. A Professional Indemnity policy taken out in the company's name generally covers professional acts carried out by its employees and collaborators in the course of their activity — but only what's declared in the policy, and only acts involving the provision of services, not the management decisions of executives, which fall under D&O insurance.

Actual coverage depends on what's expressly declared in the policy. Any substantial change to the workforce — new roles being added, new lines of activity opening up, a significant increase in headcount — should be reported to the intermediary. There's no need to report every individual departure or replacement, only changes that materially affect the declared risk profile.

The policy covers what was declared when it was taken out. If the company's actual activity has changed since the last renewal, it's worth checking that coverage is still adequate.

Towards the client, liability always rests with the company that signed the services contract. It doesn't matter whether the error was made by an employee, a freelancer or a subcontracted agency: the client will claim against whoever they hired.

The policy covers the company's liability towards the client for acts carried out in its name. In addition, some Professional Indemnity policies include legal defence cover so the company can later claim against the subcontractor or supplier that caused the error, recovering what it had to pay the client.

Best practice is to require subcontractors to prove they hold their own Professional Indemnity policy. But if an error occurs and they don't have one, a good policy of your own can include mechanisms to claim against them.

Run-off cover in Professional Indemnity extends the policy's protection beyond the end of the activity, typically for 3 to 6 years, to cover claims relating to work carried out while the company or professional was active.

When a company closes down, a professional retires or stops trading, the ordinary policy stops being renewed, but the limitation periods keep running: a client can bring a claim for work carried out years earlier. Run-off is especially relevant in three situations: closure or winding-up of the company, retirement or permanent cessation of a professional, and mergers or acquisitions where a policy disappears without anyone guaranteeing retroactive cover for the previous history.

Don't take out run-off cover at the last minute: the time to look into it is before closing down, not after. Once the activity has stopped, it can be harder or more expensive to obtain.

Technically, if your policy's limit is lower than what your client's contract requires, you may be in breach of that contract even though you have insurance. Some companies and public bodies set minimum Professional Indemnity limits as a condition for working with them.

There are two possible consequences: the client may terminate the contract for breach of the agreed terms, or, in the event of a claim, the payout the insurance can pay may be lower than what the contract sets as the company's maximum liability.

Before signing a contract with a client that sets minimum coverage limits, check that your policy meets them. If it doesn't, a limit-increase endorsement is usually quick and moderately priced.

The policy won't cover the claim that already existed when you took it out: it's a known situation and it's excluded. However, taking out the policy is still useful because it will protect the rest of the company's activity against any new claim that arrives after the effective date.

What's not possible is hiding an existing claim when taking out the policy. If your claims history is declared incorrectly, the insurer can void the policy or reject future coverage on the grounds of bad faith in the risk declaration.

An ongoing claim doesn't prevent you from taking out Professional Indemnity, but it must be declared. A specialised intermediary can advise you on how to handle the situation and which insurers offer better terms for profiles with prior claims.

Not directly. Professional Indemnity covers quantifiable financial loss caused to third parties, not reputational damage as such — although legal defence cost cover has a significant indirect effect on reputation, and some more comprehensive policies include crisis communication management.

Legal defence lets you handle the claim with the right resources, avoid rushed settlements under financial pressure, and defend the company's position with the necessary guarantees. Some more comprehensive Professional Indemnity products include crisis communication management extensions — advice on how to inform clients and the media in the event of a claim — which do have a direct impact on reputation. They're not universal, but they exist in the market.

If reputation is a critical asset for your business — and in professional services it always is — ask when taking out the policy whether it includes any crisis management service. Not all do, but some do.

Professional Indemnity protects the company against claims from clients for errors in providing its services; D&O protects the personal assets of directors and officers against claims arising from their management decisions. They're complementary coverages, not interchangeable ones.

The error covered by Professional Indemnity is a professional one: something the company got wrong in its activity. The error covered by D&O is a governance one: a strategic decision, conduct towards investors, an HR decision someone challenges.

Put directly: if a client claims because the software you delivered had a fault, Professional Indemnity responds. If a shareholder claims because the founders made an investment decision they consider negligent, D&O responds.

Notify your current insurer of the circumstance immediately and in writing, even if a formal claim hasn't been made yet, and don't switch insurers without disclosing the situation.

This is one of the most delicate situations, and one of the worst handled due to lack of information. The most common mistake is doing nothing and hoping the threat doesn't materialise; the second is switching insurers without disclosing it.

The correct approach, in this order: notify the current insurer of the circumstance immediately and in writing — most claims-made policies allow the preventive notification of circumstances that could lead to a claim, and once notified, that situation stays linked to the policy in force; don't switch insurers without disclosing it, because if a known circumstance exists and isn't declared, the new insurer can reject the claim on grounds of concealment; and consult your intermediary before making any decision.

A threat of legal action before renewal isn't an unsolvable problem. Handled well, coverage can be preserved. Handled badly, it can leave the company completely unprotected against a claim that had valid cover.

The natural instinct to wait can be very damaging. Most Professional Indemnity policies include an obligation to notify the insurer as soon as the insured becomes aware of a circumstance that could lead to a claim. The client doesn't need to have made a claim yet.

Failing to notify in time can have two serious consequences: if the policy expires and is renewed without having notified, the new policy can reject the claim when it arrives; and if the insurer considers the delay has worsened the damage, it can proportionally reduce cover.

Notifying the insurer of a circumstance isn't the same as admitting liability to the client. It simply activates the protection mechanism you've taken out. The intermediary and the insurer can support you from that very first moment, even before the client has said anything.

Not without first consulting the insurer. Most policies include a defence-control clause that reserves to the insurer the right to manage, negotiate and settle the claim. If the insured admits liability, offers compensation or reaches an agreement without the insurer's consent, the insurer may be released from its obligation to pay.

This doesn't mean disappearing from the relationship with the client. It means you can keep communication professional, but without admitting liability or offering compensation before the insurer has assessed the case.

The urge to resolve the problem directly with the client is understandable. But acting without coordinating with the insurer can cost you full cover for the claim. Notify first, act afterwards.