What does an architect do if sued for a design error? When we think of insurance, we usually think of life, health or car insurance. But there are insurance policies to protect yourself in cases where you could be liable for giving professional advice or services. This is applicable for those working as independent consultants, architects, lawyers, doctors or advertising professionals. 'The Professional Indemnity Policy' will cover such risks for you.
The cover is not limited to consultancy. It includes educational institutes, art valuers, auctioneers, tour operators and staffing companies as well. Even chartered accountants, company secretaries, public relations professionals, management consultants and insurance brokers can buy this policy.
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More and more professions are coming under this ambit because newer jobs are getting created which are consultancy based. "Also, due to increasing education, awareness levels, and huge sums spent by individuals in getting these services, they have started questioning these professionals if the services are found faulty, incorrect and not up to the mark. On the back of this, the policies sold under this segment have seen a good 40 to 45 per cent jump," says Sushant Sarin, senior vice-president, commercial lines, at Tata AIG General Insurance.
"For instance, if an advertising campaign had promised that all its content would be original and later it was found the 'jingle' was copied without paying royalty, then the company can file a lawsuit against the creative people behind the campaign for sub-standard services," says Amarnath Ananthanarayanan, managing director and chief executive officer (CEO) at Bharti AXA General Insurance.
Similarly, any design error by an architect while structuring a building can be covered by this policy. Assuming halfway through the construction, the builder realises it will be risky to build beyond a certain number of floors. This is an example of a designing error by the architects and engineers working on that project.
Or if a lawyer gives wrong advice on, say, taxation to his client and the client suffers financial losses, this will get covered under the policy. According to K G Krishnamoorthy Rao, managing director and CEO of Future Generali India Insurance: "Professions like accountancy, law and medical are considered the riskiest. This is because clients are aware of the increasing fraudulent practices that take place in these professions." The premiums are the most expensive here, usually, more than one per cent of the sum insured. For instance, to cover a doctor for Rs 50 lakh, he would have to shell out Rs 50,000 as premium. For less riskier professions, the premium rate could vary in the range of 0.30 to one per cent of the sum insured.
Since clients act on the advice and recommendations of such professionals, the latter always face a risk of getting sued. The cover will pay for lawyer's charges and for the income needed to compensate the client, as decided by a court.
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For instance, a client sues his doctor for negligence, and if the doctor has taken this policy, then it can pay for the monies spent by him on lawyers to defend his case in the court. And, if the doctor loses the case, the compensation paid to the patient will also be covered under the policy. "However, if a patient dies because of a doctor's negligence or wrong treatment, the policy will not cover such a risk because it lead to the patient's death which comes under the policy's exclusions list," adds Sarin of TATA AIG.
The policy also excludes risks arising out of fraudulent/criminal acts, false arrest, copyrights, patents, fines and penalties.
A professional working independently can buy this cover for himself. If he is part of a firm of professionals or placed with an organisation, the person can get covered if his firm buys it as a group cover.
Policy limitations: While the policy covers a wide range of risks related to a profession, it has some limitations. Every profession, and every professional within that organisation, will be profiled differently based on the job profile's risk.
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The premiums charged here depend on the person's or firm's profession, scale of practice (revenues earned), and place where revenues are coming from.
For example, for a professional or a firm, if a majority of business comes from foreign clients, insurance premium will automatically shoot up. This is because, the chances of a foreign client suing a company for sub-standard services are more than an Indian client doing so.
Premiums will also differ within a profession. For instance, the policy taken by a physician will be cheaper than by a surgeon, whereas a neurosurgeon's job is said to be riskier than that of a general surgeon. Hence, more the work or riskier the work, higher the risk, leading to higher premiums.
Earlier people didn't question 'professional' services because the common man lacked education and was heavily dependent on the provider. The situation has changed considerably. Since people spend huge sums on getting these services, compromising on its quality is out of question. Hence, take the legal route in case services are found to be faulty, not up to the mark, or of lower standards, say experts.
PROFESSIONAL INDEMNITY COVER
Who can buy?
The professional indemnity cover can be bought by doctors, lawyers, CAs, management consultants, engineers, architects or organisations like law and CA firms, advertising and marketing agencies
How much does it cost?
0.30% to 1% of the amount insured. Premiums range between Rs 10,000 to as high as Rs 25 lakh, depending on the profession, risk, scale of practice and revenues generated
What does it cover?
It compensates claims arising due to professional mistakes, error or omissions, breach of duty by a negligent act
What the policy doesn’t cover
It doesn’t cover fraudulent/criminal acts, false arrest, copyrights, patents, terrorism, penalties/ punitive damages
