Professional indemnity insurance for IT contractors 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.
How much you’re paid should be the very first consideration when deciding on your PI insurance limit. For example if you’re earning £500 a day and your contract is for a year, you should work out the total earnings. You’ll need this information for the insurance application but also the PI limit you select should comfortably cover your total earnings. The reason is that if you make a professional mistake that leads to a financial loss for which you become liable, you may be asked to refund your fees as a minimum.
Your level of responsibility
However, your fee is only the start. You also need to take into account 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 should be thinking 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 might be the result of your work, it might 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 fees and then take into account all of the above. £1,000,000 is usually the limit this profession selects and the clients expect.
Insist on limitation of liability clause
It is very tempting to not spend on 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 should ask for a clause to be included. Otherwise you are leaving yourself exposed to unlimited liability for any error that you might make. Take 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. Ensure your PI insurance limit matches or is more than the amount agreed in the clause.