Top four claim scenarios: how professional indemnity can protect your clients

Professional indemnity-related claims make up more than one quarter of all insurance losses for UK businesses. However, while the right PI policy can help organisations cover costs and navigate complex claims, many firms don’t understand what professional indemnity insurance is.  

Although mistakes, negligence, and breaches of contract happen in all types of businesses, some sectors are more susceptible to claims. This puts firms at higher risk of financial loss if they don’t have an appropriate policy. Some industry bodies make PI insurance a condition of membership. 

Here, we look at which industries and businesses are particularly vulnerable and include common scenarios that could result in professional indemnity claims: 

1. Conveyancing 

The conveyancing process can be lengthy and complicated, leading to mistakes and home buyers bringing negligence claims against your client.  

For example, your client is a conveyancing solicitor and fails to uncover a series of restrictive covenants related to a sale. These covenants could include restrictions on how the property can be used (for instance, no trading) or limits on what can be built on the land (no additional structures or extensions).  

Other mistakes could include your client providing inaccurate information, such as listing incorrect boundaries or misrepresenting access to drainage and sewage systems.  

For house buyers, these errors could result in ruined plans and financial loss to challenge or rectify the issue. They could, in turn, seek compensation.  

2. Tax advice 

Accountants and tax specialists could face negligence claims for various reasons, such as missing tax return deadlines or improperly preparing forms, which could result in fines for their clients. 

Claims can also be made against your client if they have provided poor financial advice, such as failing to advise a business owner about tax relief schemes.  

Claims for negligence and poor advice can also come about if an accountant: 

• Fails to highlight that a client has reached the VAT threshold and must register for VAT. 

• Offers ambiguous and misinterpreted advice, leading to a claim against them and damage to their businesses’ reputation.  

• Suggests schemes to minimise tax liabilities for an individual or business that later proves fraudulent.  

3. Property valuation 

Incorrectly valuing property (commercial or residential) can leave surveyors and valuers vulnerable to claims despite the difficulty gauging accuracy. 

Nevertheless, if your client’s valuation fell outside of a ‘reasonable’ margin of error (around 10% - 15%), they could face compensation claims from property buyers and sellers seeking to recoup their losses.  

4. Design and construction  

Professional indemnity claims within these sectors can be particularly complex if services are outsourced.  

Changes in safety legislation can add an extra layer of complexity, particularly if there is confusion over who is responsible for what.  

Types of claims that PI insurance can help with mainly relate to instances of poor professional advice, inadequate designs resulting in structures not fit for purpose, and breach of contract if firms fail to deliver what’s been promised. For example: 

• If an architect incorrectly adds the wrong measurements to drawings, resulting in a building that’s unfit for purpose.  

• If a designer suggests using inappropriate materials, leading to devastating consequences (such as fire or building collapse).  

• If a construction firm or surveyor fails to carry out sufficient checks, leading to weak foundations or failure to comply with building regs.  

Mitigating current and emerging risks 

Building safety, in particular, remains a key focus for the Government. In 2022, the Building Safety Act increased the time people had to claim compensation for defective work.  

Under the new legislation, claimants can now make a claim for defective work up to 30 years from the Act’s introduction (this covers any work from 28 June 1992). Claimants can include building owners, homeowners, and leaseholders. 

But it isn’t just construction firms that face increased exposure to claims; it’s firms throughout the supply chain, including architects, surveyors, solicitors, and conveyancers.  

If you need more guidance, contact us. We can arrange for you to speak with one of our professional indemnity underwriters so that you can discuss any specific client needs.