Professional Indemnity Insurance: What Professionals Need to Know

Professional indemnity (PI) insurance is designed to protect professionals from claims arising out of errors, omissions, or negligent advice in the course of their professional practice. Yet when a claim arises, many policyholders discover their understanding of their coverage does not match the reality of their policy.

What PI Insurance Actually Covers

PI policies cover claims made against you by clients who allege that your professional services caused them financial loss. This typically includes claims for negligent advice, errors or omissions, breach of professional duty, and infringement of intellectual property arising out of your professional services. Importantly, most PI policies are "claims made" policies — meaning the claim must be notified during the policy period, regardless of when the act or omission occurred.

The Duty to Notify

One of the most frequently misunderstood aspects of PI insurance is the duty to notify. Most policies require you to notify your insurer of any circumstance that might give rise to a claim — not just actual claims. Failing to notify promptly can result in the insurer declining coverage. If you become aware of a situation that could lead to a claim, notify your insurer immediately, even if no formal claim has been made.

What Is Not Covered

PI policies typically exclude intentional or dishonest conduct, bodily injury and property damage (covered by separate policies), claims arising from services outside your disclosed professional activities, and claims between related parties. Read your exclusions carefully — they vary significantly between insurers and policy forms.

The Insurance Contracts Act

The Insurance Contracts Act 1984 (Cth) imposes important obligations on both insurers and insureds. Insureds have a duty of utmost good faith, which includes a duty to disclose all matters relevant to the insurer's decision to underwrite the risk. Non-disclosure — even inadvertent — can give the insurer grounds to avoid or reduce its liability under the policy.

Risk Management to Reduce Claims

The best way to manage PI risk is to reduce its likelihood. This includes maintaining thorough file notes and written advice, using clear engagement letters and scope-of-work documents, managing client expectations carefully, and keeping your professional knowledge current. Our team delivers annual risk management presentations to professionals across Sydney — contact us to arrange a session for your firm.

If you are facing a PI claim or need advice on your policy, our Insurance & Risk Management team is here to assist. Early legal advice is almost always in your interest.