[ Focus: Insurance]
and product liability, contractors all risks, property, and business interruption. The public liability part of this policy will protect you
against any award of compensation to a member of the public (including your customer) for injury or damage to their property caused by you or your business. However, it will generally exclude damage resulting from advice or, indeed, design and specifi cation. So what happens if the design does not meet the client’s requirement and the system does not work as intended? There may not be any injury or damage, but the client could suffer fi nancial loss as a result. A professional negligence extension to a public liability policy and a full professional indemnity policy both offer a solution. The question is – which would be best for you? The two policies do have similarities, but the difference between the two could mean the difference between staying in business and not. So it really is important to understand the distinction.
A professional negligence extension – good for starters
Many insurance providers will offer a professional negligence extension to a public liability policy. The ECIC Electrical Contractors Public Liability Policy, for example, includes this extension, which will provide up to £100,000 to cover fi nancial loss where there is no injury or damage arising out of professional activities as defi ned. However, the cost involved with putting the system right would be down to you – the contractor.
The limit of liability in the extension is relatively low (at £100,000). Additionally, the policy only comes into force once the client suffers actual fi nancial loss, which means that no preventative assistance will be provided until this point. For these reasons, there are many cases when a professional negligence extension – while a good starting point – will not be suffi cient.
In such circumstances, a separate standalone product, such as a professional indemnity (PI) policy, may be more appropriate. For some professions, including solicitors, accountants, architects and fi nancial advisers, PI insurance is a legal requirement. That is not currently the case for electrical contractors; however some clients may insist upon it before they will allow work to commence.
About the author
What is professional indemnity? Professional indemnity insurance covers your business’s legal liabilities in the event of a third party taking legal action against you, claiming to have suffered a loss as a result of advice you have given in a professional capacity. It will pay damages to persons who have suffered fi nancial loss arising from your own professional negligence or that of your employees in the conduct of your business. The ECIC PI product offers up to £5m for any one claim, which is, as you’ll have no doubt spotted, signifi cantly higher than that typically offered by a professional negligence extension. Common claims that would be covered under a professional indemnity insurance policy include: Neglect, error or omission; Breach of warranty of authority;
64 ECA Today July 2012
Agneta Desouza Agneta Desouza is underwriting manager at the Electrical Contractors’ Insurance Company (ECIC).
A fi nal word The protection provided by different insurers can vary significantly and contractors should seek clarification from their insurance company or broker as to the precise cover provided by their public and product liability and professional indemnity policies. It is important to remember that some public and product liability policies exclude professional risks in their entirety, and so it is worth speaking to a company that specialises in electrical contractors. Remember, the most reputable company can fi nd itself in a dispute with a client – even when no errors have been made. Having professional indemnity insurance helps you protect your business as well as that of your client.
The difference between the two could mean the difference between staying in business and not – so it really is important to understand the distinction
Any act of libel or slander committed or uttered in good faith; Unintentional infringement of any intellectual property right, design right, registered design trademark or patent; and Unintentional breach of confi dence in the conduct and execution of professional activities.
An insurance provider or broker will be able to go
through the many differences in detail, but some of the most important ones include: PI Insurance will often cover up to £5m liability for any one claim; As well as covering the fi nancial loss of the client, it also covers the policyholder’s rectifi cation costs; The cover activates as soon as a problem is identifi ed, which would cause a fi nancial loss to the client so that measures can be taken to prevent or minimise that loss (provided the costs of this are not greater than the potential fi nancial loss of the client); and The policy will also cover legal costs.
Key considerations For your customers, trust and peace of mind that everything will be done professionally, safely and correctly is of utmost importance when making a decision about hiring an electrical contractor. They need to know that if anything goes wrong it will be put right with no loss and as little inconvenience to them as possible. How you present yourself and carry out the work goes a long way towards achieving the trust element. But when it comes to peace of mind, no one can guarantee that everything will go right all of the time. And this is why it is crucial to have the right insurance protection in place – to protect both you and your customers. When deciding whether or not a professional indemnity insurance policy is necessary for your business, it is advisable to consider the following: Your own exposure to design or professional negligence; The complexity of the work you undertake; The complexity of your client; The possible fi nancial loss a client may suffer as a result of any unintentional negligence; Your own rectifi cation costs in correcting a system you built; and The needs and requirements of your client.
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