Professional Indemnity

Professional Indemnity is about managing risk, and in today’s litigious world the risks you take can be extraordinarily high.

Professional Indemnity insurance provides any individual, company or organisation providing advice, design work or other professional service, with indemnity (including costs and expenses) in respect of legal liability arising out of the practice of their profession.  It covers you and your business in the event of damages being awarded against you due to: professional error, omission or act of negligence towards a third party to who you owe a duty of care.  Cover is based on a claim made which implies that your cover must be in force when the work is performed and when the claim is lodged. Basically, Professional Indemnity Insurance provides cover for any negligent act, error or omission made during the course of your professional duties.

The world in which professionals operate is one of ever increasing pressure, with demands for quick answers and cost effective solutions.  This pressure can lead to errors and omissions by the professional, which can and does give rise to claims. This together with the litigious nature of our society underscores the need for Professional Indemnity insurance, both for clients and professionals.

Circumstances which give rise to professional liability claims are seldom clear cut – they often give rise to disputes as to the nature and extent of the responsibility.  In cases where the professional is blameless he or she may nevertheless be drawn into lengthy disputes, which can be both financially and emotionally draining.  Professional Indemnity insurance provides the professional and the client with peace of mind and financial protection.

The demand for Professional Indemnity insurance has increased due to the increase frequency and severity of claims, changing legislation, advanced technology, economic conditions and a more litigious society.

It is important to note that any person providing financial and intermediary services has to comply with the Financial Advisory and Intermediary Services Act No. 37 of 2002 and this is then also applicable to any motor dealership where such financial and intermediary services are being provided.

The Financial Advisory and Intermediary Services Act No. 37 of 2002 has been amended in terms of Board Notice 123 of 2009. Professional Indemnity Insurance and, depending on the category of the person who is the provider of the financial and intermediary services, also Fidelity Insurance is becoming compulsory.  Motor dealers providing financial and intermediary services and who does not receive or hold clients’ financial products or funds on the date of commencement, would be regarded as falling under category 1 and with effect from 21 September 2010 would be required to maintain in force in respect of clients the following:

• Suitable guarantees of a minimum amount of R 1 million; or
• Suitable professional indemnity cover of a minimum amount of R 1 million

Any person who provides financial and intermediary services should take note of the Schedule attached to the Board Notice 123 of 2009 to verify the types of insurance cover to be in place, the limits of indemnity required and the date when such insurance cover/s should be in place having regard to the category under which such person would fall.

It is best advised that cover is put in place sooner rather than later.  Professional Indemnity Insurance cover provides the owner of a business with peace of mind that their business and their customers are protected against any negligent act, error or omission made during the course of their professional duties. From the customer’s perspective it is always reassuring to know that he or she is doing business with a prudent and responsible dealership.

Apart from the legislative requirement to have Professional Indemnity insurance in place, it is essential not only for businesses where the provision of financial and intermediary services is their core function, but just as important for businesses where providing financial and intermediary service is auxiliary to their core business.  A large claim in respect of incorrect advice given could cost a business owner their business and this is where Professional Indemnity Insurance plays a major role.