A human can make mistakes during their profession, and having insurance during such times can help one have a stand on their feet. There is a lot of professional negligence done by the professionals, because of that, their clients or patients have to suffer damage and loss. Such negligence can cost a fortune for the service providers to compensate their clients, litigation fees, the time, and income lost during the litigation process. Professional Indemnity Insurance is one such policy where such professionals can get the cost covered by the insurance for such losses. This article deals with the professional indemnity insurance basics, its types, who should buy this insurance, and other main points to keep in mind by the insurance buyer.
What is Professional Indemnity Insurance?
Professional indemnity insurance, also known as Professional liability insurance, is a form of liability insurance that helps protect professional service-providing individuals and companies from bearing the cost of defending against a negligence claim made by the client and damages awarded in such civil lawsuit. It covers the loss caused by the service provider to one’s client because of their incompetent advice or service.
Types of Insurance policy:
Professional indemnity insurance is of two types:-
- Any One Claim Policy:
This policy covers only one claim made by each individual during the insurance period. E.g., if there are two claims made for Rs. 60,000 against the Rs. 1, 00,000 limits, then the insurer will cover both the claims as they are both under Rs. 1, 00,000 limits.
- Aggregate Policy:
This policy covers all the claims made during the insurance period up to the total limit.
E.g., if there are two claims made for Rs. 60,000 against Rs. 1, 00,000 limits, then the insurer will cover only up to Rs. 1, 00,000 and the remaining Rs. 20,000 from the total Rs. 1, 20,000 needs to be paid by other resources. Thus ‘Anyone claims’ policy is used more by the professional but can depend on different varied insurance policies.
Who shall take the insurance?
All the Professionals, whether they are from the Information Technology sector, management field, doctors, fitness professionals, designers, teachers, or even private tutors must have professional indemnity insurance, or some alternative form of indemnity cover that complies with this standard, for all aspects of their professional job. All the service providers who give services, pieces of advice, designs, graphic designs, or consultations, have been advised to take this insurance. It covers the legal costs in defending actions brought against one for any breach or failure during their work that could cause financial loss to another person. Some professions are mandatorily required to take the indemnity insurance by the association or industry they are working along. Sometimes the clients also ask for professional indemnity insurance as a compulsory basis to come in a contract with self-employed professionals or freelancers. They ask this to ensure the safety and security of any losses incurred in the future.
Medical Indemnity Insurance:
Medical Insurance is the type of Professional liability insurance primarily available for medical practitioners and medical establishments. The negligence act in this profession is called medical malpractice, and the insuring contract is called malpractice insurance.
Bajaj Allianz Case Decision
National Commission held that this is an issue between the complainant and the hospital, the insurance company cannot be made a party here, and adding the insurance company as another party will only lead to additional defense and delay to the case. Thus a hospital cannot make the insurance company a party to the case.
How does the insurance work?
Indemnity insurance policies are the policies, designed by the insurance companies considering the uncertainties in the amount of compensation, which needs to be paid in any legal case. Different Insurance policies work in a different way for each profession and are designed specifically that way to compensate for the losses. The insurer starts the process to pay the damages as soon as the insured informs them about the litigation notice. The amount of compensation in case of medical litigations is based on the stress and medical trauma caused to the patients by the act of negligence or malpractices. Insurance companies offer cover for disabilities, injuries, or death due to a doctor’s acts of omission, error, or negligence.
Retroactive Period Policy:
A Retroactive policy is a past-dated policy that can help one compensate for any incident that occurred in the past before the policy was active. Therefore, it can be very much helpful for the professional. It is also a much-preferred policy, with the policy dating back as old as possible.
What can be covered by the policy?
The policy will cover all the claims made during the active period only. The renewals should be made every time to have the benefits. Also, when negligence is made, their claims can be covered only when the mistake has occurred during the tenure of the insurance policy and not before or after the active period.
Points to keep in mind:
- One should inform the insurance company as soon as the legal notice is received.
- The insurance company needs to be made a party in the lawsuit at the beginning of the litigation itself.
- These need to be done during the active period of the policy to get the full insurance.
- In professional indemnity insurance, one should not have insurance coverage gaps in between, even for a few weeks, as this can have consequences if the policy has not kept active all the time.
- To save face or reputation, one can try to settle it down with the clients and talk them through to avoid lawsuits.
Thus, it concludes that every professional should take professional indemnity insurance to secure themselves from future lawsuit expenses and other compensation costs for their professional negligence. This insurance can cover up the thousands of bucks that one could be liable for, including legal fees, lost income throughout the lawsuit, and the compensation cost. Thus Professional Indemnity Insurance can save the losses of business and the image of one in the market.
Author(s) Name: Vishruti Pandey (Bihar Institute of Law, Patna)
 Bajaj Allianz General Insurance Co. Ltd. v Devendra Mohan Anand & Anr (2019) Civil Misc. Appeal No. 1785/2018