Why is professional indemnity insurance important to trades professionals?

Dealing with difficult customers and complaints is one of the hardest things any self-employed person or manager will encounter.

No matter how good you are, when a customer is difficult, or has a legitimate complaint, it can put your reputation at risk simply because bad word spreads, and that can have a significant impact on your opportunities and your income.

Most trades professionals will have had to deal with unsatisfied customers. Unfortunately, some unsatisfied customers choose to take their complaints further and pursue legal action – especially if they feel they’ve experienced a financial loss because they followed your advice, or because they used your services. Tradesman professional indemnity insurance is specifically written to provide cover for negligence claims such as these, which will give you peace of mind just in case you do have to deal with a disgruntled client.

If I have public liability insurance (PL), why do I also need professional indemnity (PI) insurance?

Tradesman public liability insurance is a great way of protecting your business’ finances and is arguably the most common type of cover held by trades professionals. It’s a vital form of cover for any business that deals with customers as it also protects members of the public, but it has been created to cover liability claims, not for claims of negligence, bad advice and poor quality work.

PI is also a great way to protect your business financially, but will also provide cover for alleged poor advice, negligence, and for issues with designs that affect your clients and cause them a financial loss.

You can find out more about the differences between PI and PL in our article here.

Which trades does PI provide protection for?

You don’t have to be an architect or designer to benefit from PI insurance. If you’re in the trade and misinterpret designs when it comes to fitting plumbing and heating, or rewiring buildings for example, then you could be held liable for any financial loss suffered by the client.

Construction contractors are a key beneficiary of construction professional indemnity insurance as it can be a prerequisite for tenders, as well as for the protection it provides for construction designs.

PI will also provide cover for other issues that could be potentially damaging to your business.

If you ‘bad mouth’ and competitor or a main contractor you’re working for or have worked for in the past, then you could find yourself on the receiving end of legal action for defamation of character.

If you are subcontracting for a main contractor and renege on part of your contractual obligations, you could be liable for a breach of contract claim.

Another area that PI offers cover for is breach of confidential information. For example, if you store sensitive data on your computer or mobile phone about a project you’re working on, or details about client bank details and personal addresses and contact details. Unintentional sharing of this kind of information can happen due to human error and can result in, at least spam emails and unwanted telephone calls, at worst it could be the doorway for a cyber-attack on one or more individuals and result in financial loss.

Do I need trades professional indemnity insurance if I’m a sole trader?

Separating yourself and your personal assets from your business by setting up as a limited company can limit your risk exposure to liabilities claims. Although you can, as a limited company director, still be pursued personally by a claimant, even if they have made an unsuccessful claim against your limited company. You’d benefit from directors and officers insurance in this instance.

Setting up as a limited company isn’t for everyone, as 3.2 million UK sole traders (1) well attest to.

What is important to know is that professional indemnity insurance will provide cover for you in the event of a claim. The best way to know if you need PI as a sole trader is to ask yourself if you could afford to pay legal fees and a compensation claim out of your own pocket?

If not, then PI will give you the peace of mind that you’re covered should the worst happen, and a claim be made against you.

When would I need PI cover?

PI insurance offers cover for more scenarios than you might expect, including:

• Bad advice given to a client that has caused them to lose money.
• Poor quality work that has resulted in a client having to pay someone else to redo the work.
• This can mean a breach of a contractual obligation, or it can mean criminal negligence, such as working whilst under the influence. There are many examples of negligence that you should make yourself aware of.
• Defamation and libel of a competitor or previous main contractor / employer, for example.
• Breach of confidentiality. For example, this could be a confidence clause in a contract that you have/had with a main contractor, which you divulge to a competitor you have started working for.
• Unintentional breach of copyright. Anyone who produces designs and plans needs to be careful. Architects and planners could be good examples.
• Loss of documents for which you are responsible. You could be a subcontractor who’s working for a main contractor, and you lose important plans, layouts, designs. Or worse, financial documents that contain sensitive data.
• Cover if you lose goods or money that you’re responsible for, which could be a monetary payment from your client for extra materials required for their job. Or it could be materials that you are picking up for a job which may fall off the back of a flat-back lorry or be left behind in the builder’s yard.
• Data protection legislation prosecution. Data and privacy legislation is strict. It can be easy to breach the legislation without knowing it. PI will cover your costs and expenses if a claim is made against you for a breach.

You may also be required to hold professional indemnity insurance as well as tradesman public liability insurance to be accepted as a member of a professional association in your business sector.

Tradesman professional indemnity insurance in summary

• PI covers negligence and can protect your trades business against legal or financial complications.
• PI can help you win contracts, because many clients will insist you hold PI as well as PL before they give you work.
• PL and PI are similar, but PI covers advice and design work.
• PI can help you gain membership of professional associations for your trade.
• Holding PI will give you peace of mind so you can concentrate on your business.

Negligence (neg-li-gence)

Noun

• Failure to take proper care over something.
• Breach of duty of care which results in damage.
• synonyms: carelessness · lack of care · lack of proper care and attention · dereliction of duty · non-performance of duty · non-fulfilment of duty · remissness · neglectfulness · neglect · laxity · laxness · irresponsibility · inattention · inattentiveness · heedlessness · thoughtlessness · unmindfulness · forgetfulness · slackness · sloppiness · contributory negligence · culpa · barratry · delinquency · disregardfulness · inadvertence · inadvertency · oscitation
• antonyms: conscientiousness · attention to duty

Sources:

1. https://www.income-tax.co.uk/how-to-register-as-a-sole-trader/

https://www.checkatrade.com/blog/trade/professional-indemnity-insurance/

https://examples.yourdictionary.com/examples-of-negligence.html

https://www.caunceohara.co.uk/products/professional-indemnity-insurance/