Professional Indemnity Insurance in South Africa – Are They the Answers to Your Liability Cover?
One of the areas of greatest confusion is the difference between Professional Indemnity, General Liability and Product Liability Insurance. Professional Indemnity Insurance provides coverage for professionals (corporate or individual) for any negligent act, error or omission alleged to have occurred while in the performance of their professional activities and duties. It differs from General Liability and Product Liability Coverage in that the acts covered are those acts performed by an engineer, architect, doctor or attorney in rendering professional services to their clients. To better understand this coverage we will have a brief discussion below of Product Liability, Professional Indemnity and the application of the latter and how it functions.
What Is Professional Indemnity Insurance
A. Product Liability
Product Liability is the legal responsibility of a manufacturer to a consumer of its’ product. Liability arises out of the negligent manufacture of a product including defective or faulty workmanship, materials or components. It is a liability that arises from the failure of a manufacturer to properly manufacture, test or warn about its product and occurs when the product departs in a negligent manner from its intended function.
Product Liability vs Professional Indemnity Which is Better for You?
Indemnity Insurance Meaning
Counselors, psychologists and therapists who maintain private practices, even on a part time basis, must consider the litigious aspect of their practice and closely review their insurance policies to protect their practices. A key element of proper coverage is called Professional Liability Insurance. Psychologist, therapists and counselor Professional Liability Insurance typically contain comprehensive coverages for their practices as an employed or self-employed professional.
Let's begin with some basic definitions. Professional liability insurance is one aspect of general insurance, or risk financing, used to protect the purchaser from liability risks such as lawsuits and other similar types of claims. Professional liability insurance is often referred to as PLI, this is common in insurance industry jargon, though today it has become a well know laymen's term for many businesses and organizations. This type of insurance coverage can protect psychologist, therapists and counselors (and their respective practices) from suits and claims relating to errors in the performance of their professional duties.
Professional liability insurance can also be referred to as professional indemnity insurance or as errors and omissions insurance which is also referred to as E&O. It is a type of liability insurance that helps insure professional service providers, those people who provide "counseling, guidance and advice", such as therapists, psychologists and counselors, though there are many other types of service providers within this field. This class of insurance was designed to protect these service providers in the event of lawsuits, or in other words, to mitigate the onerous costs of these types of suits including negligence claims made by a client, and damages awarded in civil lawsuits. Professional liability insurance is required by law for certain types of professional service practices, and may also be required contractually predicated upon the individuals or businesses served by the psychologists, therapists and counselors.
This insurance is typically issued by carriers, but often sold by brokers or agencies. It insurance is designed to offer protection against third party insurance claims, to someone suffering loss who is not a party to the insurance contract. Damage caused intentionally may not be covered under these types of insurance policies. When a claim is made against a counselor, psychologist or therapist, the insurance carrier has a duty to defend the insured. It is important to note here, that the legal costs of a defense often do not affect policy limits, unless the policy expressly states this fact. This type of clause is important to counselors, psychologists or therapists as defense costs can increase precipitously when cases progress to trial. A simple error or omission can put an entire practice at risk, and these types of insurance policies should be specifically tailored to protect counselors, psychologists and therapists, from bearing the full cost of unexpected legal fees.