Professional Indemnity vs Public Liability Insurance

October 2008

One of the most common things we are asked by clients is to explain; the difference between professional indemnity and public liability insurance.

The key issue that separates these insurances is the duty of care each seeks to protect. You have a liability under common law to not do any damage to anyone or their property or cause them to suffer a financial loss. As a professional this duty can be separated into one of two types i.e. your general duty and your professional duty.

Everybody has a general duty of care best exampled as when walking down a street you must take care to avoid knocking over other people also walking along the same footpath. This liability is insured by Public Liability insurance.

When you undertake academic training to become a professional and hold yourself out as a professional it is reasonable that the general public including your customers - consider you an expert in your professional field of endeavour and therefore are entitled to rely upon your professional expertise. This is your professional duty best exampled by making sure that any advice you provide is accurate and complete. Any mistake you make in giving this advice or your omission to provide complete advice is protected by Professional Indemnity insurance.

Public Liability insurance covers legal liability for claims arising out of personal injury or property damage as a result of an occurrence in connection your business activities. Connection is considered to require actual or alleged causation by your business. Products liability is a relatively standard extension to Public liability insurance that broadens the cover to include personal injury or property damage arising out of your products, including tangible goods that are manufactured, sold or maintained by your business. The policy is triggered by the nature of the claim defined in the insuring clauses namely personal injury or property damage. Public and Products liability insurances do not normally cover pure financial loss claims where no property damage or personal injury has occurred.

Professional indemnity also known as PI Insurance generally covers legal liability for claims arising out of an actual or alleged breach of your professional duty, unlike public liability insurance, the claim types are not normally defined in the insuring clauses of the policy and therefore can include personal injury, property damage or financial loss. A professional duty of care generally includes the provision of professional services including design, advice or formula.

There can be a potential overlap between Public/Products and Professional Indemnity insurances and this is addressed in most policies by way of policy exclusions. However with any liability insurance this demarcation is not always clear. Public/Products liability policies usually have some form of professional services exclusion, similarly professional indemnity policies often contain exclusions relating to personal injury or property damage claims, unless arising out of a breach of professional duty.

The danger is that some exclusions insurers impose in order to tie back cover to the core policy intention sometimes have a greater than intended impact and end up actually excluding cover for critical parts of the business, leaving the Insured with an uninsured gap rather than an overlap between policy coverage.

For professionals in the construction industry or involved with the manufacture, sale, supply or maintenance of goods such as design and construct builders, IT firms or combined engineering consulting and contracting firms this area is a potential minefield highlighting the importance of arranging your liability insurance package through a specialist broker.

To the extent that any of the above content constitutes advice, it is general advice without reference to your needs or objectives and therefore cannot be relied upon. Before acting on any advice you should obtain advice specific to your needs.



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