Photo: Paul Lowry
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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.