Professional Indemnity Insurance also known as PI insurance, Errors and Omission or Professional Liability Insurance is the cover which protects professional advice and service providing individuals from bearing the full cost of defending against a lawsuit raised by a client and damages awarded during a law suit.
It means, if the third-party suffers any loss or damage, by acting upon the advice rendered by the professional while discharging his duties, and files a case, the professional indemnity insurance company will pay the compensation to the aggrieved party.
If you are a professional who falls under the following category, you should consider buying professional indemnity insurance:
- Someone who handles businesses’ or clients’ data
- Someone who is responsible for clients’ intellectual property
- Someone who provides services to guide or advise clients
- Someone whose professional work can be challenged
More specifically these are the professionals who are most likely to buy professional indemnity insurance:
- Advocates, lawyers, counsels, and solicitors
- Architects, Engineers and interior decorators
- Medical practitioners and Doctors – Falling under this category are surgeons, cardiologists, physicians, pathologists, etc.
- Medical establishments – also falling under this category are hospitals, nursing homes which can be charged for errors and omissions incurred by their employed professionals or any qualified assistant employed by the medical establishment.
- Financial accountants, chartered accountants, and management consultants
In general, those most likely to take the professional indemnity insurance are chartered accountants, lawyers, doctors, architects and professional bodies such as hospitals, law firms, and BPOs. These professionals should buy professional indemnity insurance along with their respective industry body’s rules and regulations. Even if the professionals are not obliged to have professional indemnity insurance, without it, the professional could stand to pay thousands worth of legal fees and compensation payments – excluding lost income incurred in defending any allegation.
Jayant Saran, the chartered accountant, was hired by Mrs. Reshu to complete her tax returns for the years 2013 and 2014 financial years. Jayant took all the relevant information from his client and filed the tax returns.
However, after a few months of filing tax returns, Reshu received a notice from the Income Tax Department informing her that she did not mention about the capital gains earned by her from selling an investment property in the financial year 2013. Now, Reshu was asked to pay the penalty.
Reshu filed a case against Jayant for failing to correctly complete her tax returns, and due to which she had to pay the penalty and the Income Tax Department also threatened to file a case against her in case she delayed the payment of the penalty.
Unfortunately, the court gave its verdict in favour of Reshu and asked Jayant to compensate her for the losses and mental stress, which she faced after getting the notice from the Income Tax Department.
Jayant had to pay Rs 50 lakh to Reshu, and this unexpected expense affected his business profit in that year. Jayant had to dig into his saving fund and sell his land to pay the compensation to Reshu.
Jayant had easily avoided the situation if he had bought a professional indemnity insurance. The insurance company would have helped him by paying compensation to Reshu and in this way, Jayant could have saved himself from the financial stress.
A reputed businessman Vishal Verma wanted to buy ABL IT, and therefore, he hired an accountant and asked him to check the account books of the company properly. The accountant gave positive feedback about the company, and Vishal trusted on his advice bought the company.
However, the company did not do well, and when Vishal hired another accountant to review the business books again, he found that the company had a long list of bad debts with a long line of the defaulters.
It was due to the incorrect advice of the first accountant that Vishal bought a loss-making business, and therefore, he filed a case against the accountant.
When the case reached the court, it was found that the first accountant acted carelessly and did not inspect account books completely. Due to which, Vishal incurred heavy losses by buying a loss-making entity.
Thankfully, the first accountant had a professional indemnity insurance and therefore, he reached the insurer upon receiving the information about the case filed against him. The insurer reviewed the situation and later covered both the compensation and defence cost which the first accountant had to pay towards defending himself in the court.
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