If you’re an IT Consultant and don’t currently have professional indemnity insurance, you could be leaving yourself open to some rather hefty expenses.
That’s why we have put together this handy guide, to help you navigate the potential pitfalls and ensure you have the correct IT contractor insurance in place to protect you.
Professional indemnity vs public liability
Professional indemnity insurance is not to be confused with public liability insurance. Public liability insurance covers third party injury or damage to property as a direct result of any physical work you undertake; while professional indemnity insurance covers any damage linked to your professional duties, when providing a service, advice or designs, in exchange for a fee.
So, aside from damage resulting from your physical presence, like someone tripping over the wires to your computer, any errors you make over the course of your consultancy would not be covered by a public liability insurance policy.
Why is it Needed?
Without adequate professional indemnity cover, any legal action taken against you could be financially crippling. Independent IT consultants are often tight on funding while they become established, so they forgo taking out insurance in favour of keeping their initial operating costs at a minimum.
Obviously, if the premiums aren’t sustainable, then the insurance becomes self-defeating, but as soon as it becomes financially viable, it is advisable to take out a consultant insurance policy that includes professional indemnity.
This will provide a safety net, should the worst happen and means you don’t have to worry about any potentially litigious clients. Policies can also be retroactive, meaning you can arrange for your insurer to cover any work carried out during your first years of trading, before you took out the policy, for an additional premium. This will ensure that all work you have undertaken as a consultant is protected, in case of legal challenge.
What does it cover?
Professional indemnity insurance protects you against claims made against anything you do in the course of your consultancy that could be considered to have caused ‘business injury’ to your clients. This could include mistakes and negligent acts or omissions, the loss of documents or data, unintentional breach of contract, overspending or not meeting all of your project goals.
Professional indemnity cover is only limited by the maximum amount an insurer will pay in the event of a claim being made, so the premiums payable are directly linked to the value of the exposure your insurer is taking on. Always consider the risks before taking out a policy, to make certain you have the appropriate level of cover; and remember, multiple mistakes will cost more than single mistakes and the number of people impacted by the mistakes will also affect your liability.
What are the risks associated with IT Consulting?
Everybody makes mistakes; especially when they are busy or working in high pressure environments and to strict deadlines. While most people understand this, it doesn’t prevent them from seeking legal compensation when mistakes are made. Below are the main areas of risk to watch out for as an IT consultant:
Errors and omissions
The most common risk is making errors and/or omissions in the work you carry out, and the likelihood of being sued will depend on both the essence and extent of the harm caused, as well as the nature of the people you are working for. All should be considered when weighing up your risk exposure and the appropriate level of cover you require.
More serious than errors and omissions, although often resulting from them, are claims of professional negligence. An example of how these could arise would be a failure to backup client data, either due to a system failure or personal error, resulting in irretrievable data loss. Claims of professional negligence can be hugely damaging, not only in terms of the financial penalties but also the associated harm to your professional reputation, so having adequate protection in place to combat claims is vital.
Slander and libel
Less common but still a risk are claims of slander and libel, whereby you are deemed to have made false statements that damaged the reputation of a person or business. Be careful when speaking to other consultants or companies about any bad experiences you’ve had – the less functional the business, the more likely they are to sue at a given opportunity, as it serves to deflect the blame from bad management.
How to reduce your risks
Below are some helpful tips to help you reduce your risk exposure:
- Always, if possible, have your work checked by a senior third party. This will help ensure mistakes are highlighted before the client reviews your work.
- Don’t take unnecessary risks – make sure that your responsibilities and deliverables are clearly defined, and that you’re not deemed liable for someone else’s work.
- Respond immediately to any client concerns expressed, once the project is complete. This is simply good practice and does not necessarily imply that you are taking responsibility for any perceived problems. Plus, it’s better to defend your actions yourself, than to have to listen to third party professionals summarise their perceptions of your actions in court.
- As already mentioned, if you were operating for a period of time without any form of IT consultant insurance, it’s advisable to have a retroactive start date for your professional indemnity policy, to cover that time period.
- Similarly, if you cease trading, make sure you have run-off professional indemnity cover to protect you from any future claims made against your years of practice.
As we have discussed, mistakes cannot always be prevented and are more likely than not going to occur at some point in your professional career. If not properly protected, claims resulting from these mistakes can be both financially and professionally devastating. So, with all this in mind, it makes sense to mitigate the risk of being sued with adequate professional indemnity cover.
If you would like to learn more about the features of professional indemnity insurance from OBF, please visit the dedicated page on our website. Alternatively, if you are unsure of the cover you may need, feel free to call our friendly team of experts on +353 (01) 660 1033, we will be happy to help determine your requirements.