Professional indemnity insurance is not compulsory for most small businesses but it should still rank high on the ‘to do’ list of the average start up.

The United Kingdom has become an increasingly litigious society and even the most cautious business owners can find themselves on the wrong side of a court action.

The most publicised lawsuits are of the ‘slip and trip’ variety and are covered under public liability insurance. However, an increasing number of claims focus on the professional conduct of business owners, managers and directors.

For small business owners, this type of claim could be extremely costly.
These suits do not need to be based on explicit actions. They can relate to any conduct, error or omission. Increasingly, professional indemnity insurance claims do not assert negligence by an officer – rather that the officer misled or deceived the claimant.

And it is not just business in the main professions feeling the heat. Professional indemnity insurance is compulsory for most health, legal and financial professions, but claims are now being made against the full spectrum of working United Kingdom.

Trade based businesses are just as susceptible as their white collar counterparts and often have a great deal to lose. Successful suits can command damages in the millions – enough to devastate the average small business. Then there are the heavy court costs associated with trials that can take up to five years – even if the defending party is judged in the right.

It is a horror situation for a business at the lower end of the scale, which is why professional indemnity insurance is becoming such a vital part of commercial insurance portfolios.

Before signing on the dotted line, potential policyholders need to ensure the cover is enough to cover the costs of defending a claim. They should also check the fine print as policies vary considerably between providers. For example, some policies do not cover claims arising from events before the insurance was taken out.