IT Contractors Professional Indemnity (PI) insurance is pretty much a mandatory requirement these days before being able to commence a contract - but what exactly does it cover, why do I need it, what is retroactive cover etc? Let us fill in the gaps for you..
What is IT Contractor PI?
PI insurance is an insurance required by an IT Contractor to provide cover against claims being against the company in respect of, in the main, professional errors and omissions. It is extremely rare to be allowed to start a contract with the end client before providing evidence that the business holds Professional Indemnity insurance to the limit stipulated in the written contract, which is often £1m, but is sometimes £2m or £5m. As a business, can you afford not to hold PI insurance and risk the reputation and livelihood of your company if you get sued, which itself can often just be an allegation?
A common misconception made by the odd contractor is that they are under the impression that the PI insurance of the agency that they have sourced the contract through covers them, when it doesn’t. This leaves them uninsured and open to claims made against the business.
What does IT Contractor PI Cover?
Our Professional Indemnity (PI) product is one of the market leading PI insurances available on the market. Our fully comprehensive policy offers the following cover as standard for IT Contractors:
• Civil liability - damages
• Civil liability - defence costs
• Civil liability - claimant costs and expenses
• Awards by Ombudsmen
• Loss of or damage to documents
• Data Protection prosecution defence costs
• Compensation for court attendance
• Indemnity to specialists and sub-contractors
• Indemnity to principles
Professional Indemnity insurance protects your business from the financial costs of both legal representation and the associated civil liabilities, which can often run in to hundreds of thousands of pounds. It shouldn’t be overlooked that a legal case can be brought purely on an allegation. As you can see, our PI policies don’t just cover errors and omissions, they have been specifically tailored to the needs of an IT Contractor to extend cover both up and down the chain (for principles and sub-contractors), for data protection defence costs, for damage to documents – something that is often overlooked, and more.
Will holding IT Contractor PI assist me with my IR35 position?
Your IR35 position will be enhanced, as it acts as a clear indicator that you are a genuine business, as you are open to the possibility of being sued and having to rectify an error or omission at your own cost, something that an employee passes onto their employer to sort out and cover the cost of. HMRC consider several factors during an IR35 status enquiry, one of which is are in business on your own account? Having Professional Indemnity insurance in place demonstrates that you are.
What is ‘retroactive cover’ and do I need it?
This covers your work on previous contracts, on the basis that you aren’t aware of any issues with your work that could lead to a claim being made against you, and on the basis that uninterrupted cover has been in place up to this point. Contractors often swap insurers, and by extending cover to include this provides them with total peace of mind.
Should I cancel my IT Contractor PI insurance when my contract finishes?
NO! This is a common mistake that is often made by many contractors. If a business cancels their PI insurance when a contract ends, say maybe in the knowledge that you are taking a well-earned months holiday before taking up the next contract, they risk putting their business in the position of being uninsured at the point a claim is made. A PI insurance policy is what is known as a ‘claims made’ policy, where it pays out for a claim made during the policy period. Therefore, the business needs to have PI insurance in place when they receive notification of the claim.
I work on multiple contracts at once, do I need PI insurance for each one?
If you are working in the very similar roles the you should be ok with the one policy. However, if you are undertaking different roles, you should check with your broker as it can result in different polices being required to be issued and different prices being charged. Our PI policies cover you for working on multiple contracts, providing you are doing the same job role.
I’ve been asked to swap roles on my contract, am I still covered?
This is the same as the above question and working on multiple contracts at once. If you are working in very similar roles the you should be ok, but you will need to check the policy documents and with your broker to ensure this is the case.
Am I covered for work I do all over the world?
Unfortunately not. The vast majority of Professional Indemnity insurances provide cover for on a worldwide basis but exclude North America (this being the USA, Canada and Mexico). If you take up a contract with an end client operating in North America you will need to ensure you have a PI insurance policy that specifically extends to that region, or take out a separate policy specific to that region. Our policies do not cover Canada and North America.
Finally, can you provide an example of a claim?
An example of what Professional Indemnity might cover for an IT Contractor is where a software programmer makes an error in their coding, which results in unexpected downtime on the end clients’ main system, taking it wholly offline and with a large financial cost to them. The PI insurance will enact to cover the costs of legal representation to defend or settle the matter, cover damages if you are found liable and any breach of contract or unintentional breach of confidentiality etc.