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The need for professional indemnity insurance is no longer restricted to professionals who provide advice or a service to their customers.
Anyone who is an expert in a particular field and whose expertise and advice consumers might rely on, should consider acquiring professional indemnity cover. While some professions carry a bigger inherent risk of lawsuits than others, a growing number of professionals offering services to the general public are identifying the need to insure themselves against possible legal action that could be financially devastating.
Professional indemnity insurance protects the insured person against negligent acts by the insured person in performing his or her professional duties. In most instances, South African law uses the ‘reasonable person test’ as a benchmark to test negligence – what would a comparable person, in a comparable situation have done? When a qualified professional is being questioned, however, the benchmark becomes ‘the reasonable expert test’ which means the obligation is much higher. If the conduct of a professionals falls short of this standard, it can be said that they acted in a negligent manner. If third parties or clients suffer harm or a loss due to a professional’s negligence, they are entitled to damages, regardless of whether or not they are a paying client.
In many cases, industry bodies arrange cover for their members, and it is often a requirement of membership. Most large commercial and industrial transactions also require that the contracting professional has professional indemnity cover in place. Aside from the above, a growing number of professionals are looking to cover themselves, because even the most conscientious practitioner could make a mistake. Professional indemnity cover allows a professional the freedom to function with less risk.
There has been a rise in lawsuits against professionals, a trend that some industry experts believe is due to tougher economic conditions leading to cash-strapped consumers looking for ways to get their hands on money. This trend is exacerbated by an increase in legal practitioners who are willing to work on a contingency basis.
The introduction of consumer-friendly legislation, such as the Consumer Protection Act and the Financial Advisory and Intermediary Services Act, has also increased consumers’ awareness of their rights and remedies, and has made them less inclined to accept losses and damages.
Professional indemnity cover pays out the damages and legal costs in the case of a successful claim against you, as well as compensating you for legal costs where the case against you is proved to be unfounded. Although criminal wrongdoing is excluded in liability policies, a professional indemnity policy would pay legal costs until the insured admits guilt or is found guilty.
When looking to acquire professional indemnity cover, the services of your financial adviser is vital in ensuring that your cover is adequate to cover your unique risks, that it complies with any professional body or legislated requirements, and that you are not exposed under any exclusions and conditions that may exist on your policy.
The information contained in this article is of a general nature and intended for information purposes only. It is neither to be construed as financial advice nor to be regarded as a definitive analysis of any financial, legal or other issue. Individuals must not rely on this information to make a financial or investment decision. Before making any decision, we recommend you consult your financial planner/adviser to take into account your particular investment objectives, financial situation and individual needs.