The following is a guest post. If interested in submitting a guest post, please read my
guest posting policy and then contact me.
Picture the scene: your business provides wholesale mortar to construction companies who do not wish to mix it themselves. One has recently used solely your product in the construction of a new shopping centre that is going to form the centrepiece of a massive entertainment development, to be opened with much fanfare, and the attendance of local celebrities. However, while initially your product seems to do exactly what it was intended for, after a few months it transpires that water is leaking in through the walls, and upon investigation your mortar is found to be the culprit. The opening of the shopping centre is forced to be delayed, incurring council fines, loss of business, and a number of shops have found that their premises have been damaged by the amount of water that has seeped in. It then turns out that concerns were raised within your company about this potential defect, but were ignored.
Clearly, you cannot be held liable for any physical harm to individuals, so this is not the kind of potential legal action you need to worry about. More of concern is the range of corporate charges that may be bought against you; from a negligent attitude towards the fidelity of your product to its misrepresentation to the client, as well as a range of demands for compensation of the basis of different interpretations of malpractice. The shop owners could legitimately argue that not only have you cost them in terms of damage to their potential earnings, but have caused damage to both their reputation and their potential future income through their association with the substandard shopping complex.
It’s incidents like this that make professional indemnity insurance an essential defence for a wide range of professions; often it can be the difference between allowing your company the support and resources to defend itself, and its sinking under financial penalties.
All professionals who provide services to others should ensure that they have adequate professional indemnity insurance (PII). Not to do so is very dangerous. Many professions require PII by law, and most professional and trades associations also require their members to have it.
The kinds of businesses that require PII are broadening. Many businesses of various kinds keep client data on their computers, and computers and the data they hold are vulnerable. Computers can be hacked and laptops can be lost or stolen, and people are very sensitive about their personal data falling into the wrong hands.
Ten percent of UK businesses have at some time had their computer systems hacked, and only a quarter of businesses are confident that the data they have on clients is adequately secured. The cost of cyber crime in the UK is around £11 billion a year, and small businesses are a favourite target; most small business owners are fully occupied, with insufficient time to ensure that their computer systems are fully secure.
If you handle any client data at all, then the chances of it falling into the wrong hands are surprisingly high, and if it does then you are likely to find yourself in court. In our litigious world people are eager to sue, and finding yourself on the wrong side of a law suit can be extremely damaging to your financial health. Not only are you likely to have to pay compensation, you will have to cover both your own and the other party’s costs.
Data theft might be a relatively new reason for taking out professional liability insurance, but this is just another of the possible dangers of working without it. Mistakes are made, accidents happen, sometimes people are negligent, and as a result people are damaged, which would make them morally and legally entitled to sue the person who was responsible. Failing to take out PII is a foolish economy that hopefully you won’t make.
Good points. I think PII is just another tool that many businesses need to have in today’s culture. With as often as things can happen and the likelihood for an impending lawsuit, it looks like this could take some stress off of a business owners plate.
John S @ Frugal Rules recently posted..Are Credit Cards Really That Bad?
Some businesses are all too quick to sue each other. So yeah it is a good idea to protect your business from that kind of threat.
It is crazy how many different types of insurance there are out there. I wonder what you can’t insure against!
This is actually one of the more normal insurance types. The ones that I find more peculiar are when a celebrity or athlete insures a certain body part.
Data theft is an issue that is becoming more and more relevant.. Did you hear what happened to Rasgas at the end of last month? http://in.reuters.com/article/2012/08/30/qatar-rasgas-idINL6E8JUD1K20120830
Scary Scary stuff….
Savvy Scot recently posted..How does my Swedish made furniture end up in my lounge room?
I hadn’t heard about that but it is a pretty scary situation that hackers could gain access to such a big company’s computer systems.
“If you handle any client data at all, then the chances of it falling into the wrong hands are surprisingly high, and if it does then you are likely to find yourself in court.” This is a very important and personal reminder to me. I seriously need to look into PII!
DC @ Young Adult Money recently posted..Ways to Save on “Everyday Use” Items
Fortunately I’ve never been responsible for any confidential client data that I had to protect myself legally. I do wonder how liable I would be if they gained access to less sensitive data. Perhaps it could still be used against the client.
“Ten percent of UK businesses have at some time had their computer systems hacked” – I’d be willing to bet that number is so low because of the fact that most businesses are not worth hacking because they are so small.
This should be on a checklist of suggested items when you incorporate a business, like homeowner’s insurance is when you buy a house!
Mrs. Pop @ Planting Our Pennies recently posted..How Much Does Your Family Know About Your Money?
Actually I bet that the smaller companies just didn’t want to admit to being so vulnerable. I’m sure most hacking happens without it really being shared publicly or with any authorities.
Great info. I do some side photography and I need to grab some of this insurance!
Debt free teen recently posted..Fashion at College
I would think that most photography related work would be pretty safe from lawsuits. I couldn’t imagine any professional photos that would be sensitive enough that they would justify a lawsuit.
Oh, I was quite surprised with that cost of the cyber crime in the UK!
Are those small business still not threatened about it. They must really be attentive to that issue and they need to make sure that all their data are secured!
Danyelle Franciosa recently posted..Allkind Joinery Brisbane – Upholding a Proud Tradition
That total is rather staggering. I wouldn’t have guessed it was such a massive number. I guess small businesses are just a little naive about it all. They assume that while they’re small they don’t necessarily need to protect themselves as much. Unfortunately if they keep that mindset they just become another statistic.
I have so much insurance it’s really not funny. I certainly hope I never have to use any of it, but do sleep better at night.
I guess in your line of work patients might get a little lawsuit crazy if they don’t get the results they’d hope for. You definitely wouldn’t want to leave yourself exposed to that.
These days anyone in business needs to have the bases covered by insurance. There is too much that can go wrong that’s out of your control. You have to protect your livelihood.
For sure, it’s better to be protected than risk having your livelihood open to that kind of risk. That would be so disheartening to lose your business over something like that.
It’s not only the potential loss of money that will cause problems. If someone makes a claim against you and you haven’t bought insurance then you are going to have to sort everything out yourself which is going to be really stressful.
For sure, it woud be a lot more stressful when you don’t have any kind of coverage. It would be way easier to deal with if you have insurance.