News
November 2022

Do I need professional indemnity insurance as a sole trader or small business?

Freelancers and small businesses often say “I don’t need insurance, I’ve got no issues with my clients”. And hopefully that’s how it will always be for you. But every now and again something happens and client relations rapidly change. Just like it did for these business owners.

Sole trader working from home.

Defending your business against a false accusations

A client who’d caused damage to her scalp decided to shift the blame on her hairdresser whom she’d seen days earlier. The client brought a claim of £30,000 against the hairdresser based in London, alleging that the damage to her scallop occurred while receiving a hair colour treatment from the hairdresser. Source: Daily Mail

This would have been a very stressful time for the hairdresser who did nothing wrong and yet ended up in court having to defend her reputation and bank balance. 

Accidents can happen to anyone, no matter how well trained

Any kind of personal trainer, fitness instructor or sports coach can face this scenario and there is usually no warning. Mr Andrews, a karate instructor, demonstrated a leg sweep on his student which unfortunately ended up in a serious injury to student. Source: Basingstoke Gazette

No instructor wants to hurt his clients, that’s just bad for business, but it does happen and naturally clients will look to the instructor for remedy. A six figure injury payout is generally beyond the means of this profession and solid liability insurance is the only answer to protect your livelihood.

Facing a breach of contract claim

Businesses that provide advice and services within non manual industries tend to face the challenge of blurred contract boundaries. In other words the client expectations don’t always equal the project brief deliverables.

Enjoy Media was sued by one of its clients for over £600,000 for not delivering the commissioned work. The client commissioned Enjoy Media to advertise the client’s brand across London’s transport network. Enjoy Media subcontracted the work to another company.

The client believed that only a portion of the paid advertising campaign was delivered and in some cases wasn’t delivered to contract specifications. Source: Charged

These types of claims can be very complex and take months if not years to settle. They demand professional legal help and with that comes a seriously high price tag. Needless to say that if the case doesn’t go your way, there is also the threat of a compensation payout. 

Getting sued for misrepresentation

The example we pick here is that of an estate agent. This profession is always in the firing line given the amounts of money at stake. The Financial Times debates a case of overvaluing a property. In other words an example of misrepresenting certain information to entice a client to spend more than it’s fair.

However, this can happen to a range of professions - a second hand car dealer, interior designer, property investment manager and others. When you make recommendations on how your clients should spend their money, your advice will always be scrutinised. And very typically these claims come from your past work.

If you provide these types of services, always ensure you have professional indemnity insurance with a retroactive date going back far enough to cover your past work.

Saying something wrong

Unsurprisingly in the world of free speech many small business owners or freelancers can’t begin to imagine how saying something can lead to a claim against them. And yet it happens frequently enough.

It happened to a support group in Brighton when refusing to create a female only group on the request of one of their clients. Source: Brighton & Hove News.

It also happened to a health consultant Jason who was accused of making racial comments to one of his clients. The consultant managed to defend his reputation and bank balance. Thanks to having the right consultant professional liability insurance at the time, he had access to qualified legal defence, in the end amounting to some £150,000.

Conclusion

If you are running any kind of business in the UK, you have professional liability risks. The two key products that can protect you against claims of professional misconduct or causing an injury/property damage are professional indemnity and public liability insurance. Whether you need one, the other or both will depend on the nature of your business.

As a sole trader you are even at more risk because everything you own is on the line. Professional liability insurance is reasonably inexpensive and an invaluable legal shield. So going back to the original question - Do I need professional indemnity insurance as a sole trader or small business?. We say absolutely.

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