Professional Indemnity for sole traders
What is professional indemnity insurance?
It’s a type of insurance that protects you and your business if you are sued by a client because your recommendations, advice, or professional services caused them financial loss.
If you offer designs, specifications, advice, or instructions in your line of work – as many in the construction industry do – you should consider getting professional indemnity insurance.
Do sole traders need professional indemnity insurance?
If you offer any of the services above, you should have professional indemnity cover.
It doesn’t matter how small your business is, or whether you are working as a sole trader.
Why do I need professional indemnity insurance?
If you are successfully sued, the costs involved can be substantial.
The claim itself, and putting right any damage that has been caused, can quickly add up to hundreds of thousands of pounds.
There are also the legal costs involved, which can add thousands to the total cost.
Without professional indemnity cover, you will be responsible for paying these costs. For a limited company, the company will be required to pay. However, as a sole trader, you will be held financially responsible.
If you can’t pay, your business and other assets you own may be at risk.
Must I have cover?
While you are not legally obliged to have this type of insurance, some clients may make it a contractual requirement. Without it, you won’t be able to do business with them.
Some trade associations may also require you to have cover to be a member.
How much does it cost to have professional indemnity cover?
The cost of your premium will be calculated by considering several factors. These include:
- the size of your business
- the size of your contracts
- the type of work you do
- the amount of risk you are exposed to
- the type of clients you work with.
In its simplest form, Professional Indemnity insurance is designed to cover legal costs and expenses that might be incurred if you find yourself the subject of litigious action resulting from advice or guidance you have provided in your professional capacity.
You might find that you are facing legal action as the result of a client believing that they been provided with sub-standard advice, designs or services and have, as a result, lost money. Facing a claim of this sort without adequate legal cover could have a significant impact on your business.
There is no fixed and easy answer to this, and it depends on many factors. Some professional bodies or associations require professional indemnity cover, so if you’re a member of a trade body, it’s worth checking their membership criteria. After this, you need to look at the nature of the work you do:
- Do you have a contractual obligation? Some contracts stipulate a minimum level of cover, so it’s worth checking your paperwork to see if a level is stated.
- Who do you work for? How big is your client, and do they have a track record of taking legal action against suppliers? Big clients with deep pockets don’t necessarily sue as a matter of course when things go wrong, however they may have legal teams and be better equipped and more familiar with legal action than smaller clients.
- What type of work do you do, and what type of advice do you provide that could leave you open to the risk of being sued? What mistakes could you make in the course of your work, and what might the implications be?
- What is the worst mistake that you could make? How much might your client be out of pocket? They may want you to make good, or compensate them for remedial work, or both.
- How well do you know your clients? Knowing someone doesn’t mean that they wouldn’t sue you, but it might reduce the chances as you may be able to resolve matters between you.
- How much you might be sued for? This could relate to the amount that you charge for the job, as well as the costs of rectifying your mistake.
- Do your clients have a history of taking legal action against suppliers? You may have heard that a client sues when things go wrong as a matter of course.
- What might it cost to defend yourself, including legal fees etc? Legal fees can quickly mount up, including researching your case, writing letters or representing you in court.
Answers to each of the questions above can vary, and if you work for multiple clients or main contractors, your requirements may vary from job to job.
As you’ll see, there are a lot of considerations, and you need to be confident that you’re adequately protected, and ensuring that you have sufficient cover is your responsibility. Our Tradesman insurance policy includes £100,000 of Professional Indemnity cover if you choose either our Classic or Plus cover options. If you have further questions, or feel that you may require a higher limit, you can call our insurance team on 0800 0280 380. We offer standalone Professional Indemnity cover with higher limits, but cannot increase the amount of Professional Indemnity cover in our Tradesman insurance policy.
No. Professional Indemnity insurance isn’t required by law in Great Britain, Northern Ireland, the Isle of Man or the Channel Islands, for tradespeople. While it’s not required by law, you should consider the potential financial impact of someone taking legal action against you for the professional advice that you have given, and this includes the potential costs of defending yourself, plus any costs that might be awarded against you.
If you stop working in your current professional capacity, claims for Professional Indemnity negligence can still be lodged against you for a period of time. As a result, you may want to consider maintaining PI cover for a period of time after you stop working.