Professional indemnity: cover for being wrong, not for being unlucky

Professional indemnity covers the consequences of getting the work wrong: negligent advice, a design that fails, a report somebody relied on, a missed deadline that cost a client money. It is not about accidents on your premises or damage to property — those are different policies — and the distinction matters because the claims that bankrupt small consultancies are almost always about the work itself rather than about anything physical.

What professional indemnity covers

• Negligent acts, errors and omissions in the professional service you provide.
• Defence costs, which frequently exceed the claim and are the reason the cover is worth having even for claims you would win.
• Breach of confidentiality and unintentional infringement of intellectual property, in most wordings.
• Loss of documents or data entrusted to you, where reconstructing them costs money.
• The acts of subcontractors you used, usually — but check, because this is a common and expensive gap.
• Not deliberate wrongdoing, and not the cost of redoing the work itself, which remains yours.

Why claims-made cover changes everything

Most professional indemnity is written on a claims-made basis, which means the policy that responds is the one in force when the claim is made, not the one in force when you did the work. Two consequences follow and both surprise people. First, a gap in cover is retrospective: let the policy lapse and you lose protection for every past project, not just future ones. Second, when you stop trading, claims can still arrive for years — which is why run-off cover exists and why forgetting it is the most expensive mistake in this area. A consultant who retires and cancels the policy has effectively uninsured their entire career.

Check the retroactive date, not just the limit. Cover usually responds only to work done after a stated date, so switching insurer can quietly exclude your earlier projects unless that date is carried across. It is the number nobody looks at and the one that decides whether a claim about a three-year-old job is covered.

Setting the limit

1. Start from what clients contractually require, since many will not engage you below a stated figure.
2. Then consider the worst realistic loss a client could suffer from your work, which is usually far larger than your fee.
3. Check whether the limit is per claim or in the aggregate across the year — the second can be exhausted by one bad project.
4. Confirm defence costs are in addition to the limit rather than eroding it, because erosion can leave nothing for the settlement.
5. Review it when you take on a materially larger client or a new type of work, rather than annually by habit.

Keeping it clean

Notify circumstances, not just claims. Most wordings require you to tell the insurer about anything that might reasonably give rise to a claim — an unhappy client, a mistake you spotted yourself — and failing to notify in the policy year when you knew about it can forfeit cover entirely. The instinct to resolve it quietly first is understandable and is precisely what voids the protection, so the safe habit is to notify early and keep the record of having done so.

Ettex Records holds the policy, the retroactive date, the limit and the renewal together, with the certificates clients keep asking for attached. Those dates belong beside every other expiry date in the business, since the consequence of a lapse here is retrospective rather than merely future.