Thursday, October 24

Cover your professional risks with indemnity insurance




Why Needed

In today’s world, any professional – be that a doctor, lawyer, CA or architect — or professional bodies such as medical establishments, BPOs, law firms, IT companies or financial institutions, who render skilful advice and services to people, can be sued for negligence, errors and omissions on their part, the cost of which, in some cases, can be exorbitant.

The one saving grace is that the extent of damage (financial damage at least) can be reduced if someone has already opted for professional indemnity insurance, and any loss or damage caused to the victim is not the result of any deliberate act or willful neglect.

Currently, almost all general insurance companies offer this cover to professionals, the prominent ones being New India Assurance, Tata AIG, Bajaj Allianz, HDFC Ergo, United India, National Insurance and ICICI Lombard. Some insurers even have separate policies for doctors, CAs, engineers, lawyers, architects and stock brokers against unintentional errors and omissions that may cause damage, loss or hardship to their clients.

What is Indemnity Insurance

Broadly speaking, professional indemnity insurance indemnifies the insured against financial loss resulting from a claim brought about due to an error or omission committed while performing a service contracted for. One condition, however, being that the loss must be to a third party who has suffered bodily injury or property damage. The cover, in fact, is needed as the insured may not be able to bear the loss if a claim is brought against him/his company, as also to comply with contractual obligations and sometimes with statutory mandates.


Losses Covered

The policy also pays for the defence cost incurred in defending the case. And they can insure not only themselves, but also other partner or consulting doctors as well as employed assistants
For accountants and lawyers, the policy covers the legal liability incurred by way of losses to clients arising out of the acts of omissions or errors on the part of the insured or his paid employees named in the proposal. For instance, if someone’s attorney is handling a case for him and fails to file a paper with the court by a deadline, resulting in the decreased value or complete loss of his case, the attorney would be liable for an errors and omissions claim.

The policy also deals with professional liability exposures of accountants and lawyers who hold themselves out to the public as professionals willing to perform professional services, for a fee, as independent contractors or their employees, partners or shareholders. They have passed required examinations, and are bound by a comprehensive and strictly-enforced code of professional ethics.

Don't Cover

Indemnity insurance, however, doesn’t cover liabilities arising out of criminal acts or any act committed in violation of any law or ordinance, besides services rendered while under the influence of intoxicants. Likewise, fines, penalties, punitive or exemplary damages are not covered, nor any third party public liability or losses arising out of war and nuclear perils. Similarly, breach of confidentiality or prior knowledge or anticipation of a claim will only lead to the rebuttal of a claim. In fact, each insurer has its own list of exclusions which must be carefully taken into consideration before taking any cover.

Limit for Insured Amount

There is no fixed limit of indemnity and this would depend on the insured’s perception of risk and the area of operations. For determining the indemnity limit, thus, the insured has to assess his risk, the probability of the occurrence, and the maximum loss he can bear without jeopardizing his business. Generally an individual would buy liability limits in the range of Rs 2-5 crore, while for a company the limit would depend on the size of operations, geographical exposure, etc. Often, engineering companies buy this cover for their contractual requirements and the limit of indemnity in such cases depends on the contract stipulations.

Things to be kept in mind while taking insurance


Whatever be the case, the sum insured should be chosen in a manner that it covers any legal obligation that the insured may face at any given point of time based on his contract size, clientele spread, and contractual features with the clients. The adequacy of sum insured and the coverage with extensions opted are the most important factors to be borne in mind while taking the cover.
Whatever be the case, the sum insured should be chosen in a manner that it covers any legal obligation that the insured may face at any given point of time based on his contract size, clientele spread, and contractual features with the clients. The adequacy of sum insured and the coverage with extensions opted are the most important factors to be borne in mind while taking the cover.

Sources:ET, Google.



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