What is Professional Indemnity Insurance?

Professional indemnity insurance insures professional advisors and consultants against allegations of and claims for breach of their professional duty or, more specifically, negligence, during the course of performing their professional services. To 'indemnify' means to 'reimburse'.



What is Professional Indemnity Insurance?
What is Professional Indemnity Insurance?


While professional indemnity insurance may insure against breach of contract (if that breach would amount to a negligent error, act or omission), it does not extend to a breach of contract where that breach sits outside of a breach of professional duty and where the contract imposes a higher standard than the professional duty of care.


An example is where a structural engineer has a contractual duty to review and accurately advise on shortcomings in geotechnical drawings and breaches that duty. Under the law of negligence, the structural engineer is measured against the standard of a 'reasonable' structural engineer in similar circumstances. If a hypothetical 'reasonable' structural engineer could not be expected to review and accurately advise on shortcomings in geotechnical drawings (because they are a structural engineer, and not a geotechnical engineer).


In those circumstances where the contractual obligations of the structural engineer goes beyond what the structural engineer would be expected to do as part of their professional duty, the policy of professional indemnity insurance might not respond to the claim. This means that an insurer might refuse to reimburse the insured, in which case the insured may have to defend and pay for the claim out of its own pocket.


Author: Farrah Motley | Legal Principal

PROSPER LAW - A Law Firm for Businesses

M: 0422 721 121

E: farrah@prosperlaw.com.au

W: www.prosperlaw.com.au


Prosper Law
Prosper Law