IT contractor professional indemnity insurance is a key cover that is almost always required by the client contract, or the agency if that’s how you’re engaging with your client.
Therefore the first thing to do is to check whether either of those parties has expressed any expectations in that regard. Occasionally, as unusual as it is, there may be none and in that case you’ll need to use other information to decide on what’s appropriate for you.
Your contract
The first step is to check your contract. Sometimes there is a specific clause referring to insurance requirements. This clause usually sets the type of insurance required and the level of cover. It's important to note that employement contracts are not written by insurance specialist and sometime the requirements don't match what is actually available from insurance providers.
Almost always contracts contain a clause or clauses referring to your liabilities if something goes wrong. These clauses are rarely a two way street. In other words, understanding what you are committing to by signing the contract is important. Sometimes responsibilities assumed under a contract are uninsurable.
Therefore understanding your contract liabilities and any insurance requirements is crucial before signing. Whilst no insurance policy will cover every risk, you want to be able to insure most of the exposures inherent in your work.
Your level of responsibility
If your contract is silent on the subject of insurance requirments and liabilities, the next aspect to take into account is the level of responsibility you will have within the project.
If you’re in charge of the IT contract and make critical decisions that have an impact on the progress, timing, spend and other elements influencing the project outcome, the risk that your client may blame you for problems increases.
On the other hand if you’re just a member of the IT project team following instructions of the manager, you are less likely to be exposed if something goes wrong.
The project budget
Next you should familiarise yourself with the monetary budget of the project and understand the financial impact if the project were not to deliver the outcome. Combined with the level of your responsibility this is a crucial piece of information in deciding what professional indemnity limit you should consider.
Your end client
The bigger the client the more need there is to protect yourself with sufficient professional indemnity insurance limits.
You might have to think millions rather than hundreds of thousands even if your IT contractor role is relatively minor. Large companies have deep pockets and if they decide a failure is the result of your work, it could end up costing you.
The length of your contract
Each month spent on a contract creates more possibilities of a mistake or multiple of mistakes. The impact of those errors could add up and easily breach your PI limit if it is too low.
PI limits available
The insurance market provides a wide range of PI limits starting at £50,000. That is unlikely to cover the earnings of most IT contractors, let alone legal costs and possible compensation if you’re found liable. Therefore start with your total contract fees and then take into account all of the above. £1,000,000 is usually the limit this profession selects and the clients expect but it is not unheard of that some contracts demand as much as £5,000,000 limit.
Insist on limitation of liability clause
It is very tempting to not spend on self-employed professional indemnity insurance when it’s not required by the contract. However, if the proposed IT contract is silent on the subject of liability, you yourself might ask for a clause to be included.
Otherwise you are leaving yourself exposed to unlimited liability for any error that you might make. Take legal advice on this front.
The best option is to have a clause that absolves you of all liability (this is unlikely to be accepted) or limits your liability to a certain amount, such as the total of your earnings from the project.
Ideally your PI insurance limit would match or be more than the amount agreed in the clause.
CEO of Suited, with 20 years’ experience in business insurance, focused on building flexible, digital insurance solutions for SMEs and self-employed professionals.
Co-founder of Suited and insurance technology specialist, highly experienced in designing and delivering digital insurance solutions for SMEs and the self-employed.
Note
This guide is for informational purposes only and does not constitute advice or a personal recommendation.
