What is Professional Indemnity insurance?
Professional Indemnity (PI) insurance covers legal costs and expenses incurred in your defence, as well as any costs that may be awarded if you are alleged to have provided inadequate advice, services or designs that cause your client to lose money.
Many professions need to have PI as part of their respective industry body’s regulatory requirements. Even if you are not obliged to have PI insurance, without it, you could be liable for hefty legal fees and/or compensation payments.
Cover Areas:
Media wordings:
Technology wordings:
Typically, these can give rise to three types of claims:
Simpson Nash Wharton (SNW) vs. Barco Graphics Ltd: SNW (design consultants) bought a graphic design system (hardware, operating systems, applications software and peripherals) from Barco. Barco had an established system, Aesthedes 1, which they demonstrated to SNW. However, by the time SNW were to be supplied, Barco had brought out a new version, Aesthedes 2, which they supplied to SNW. There was no written contract or warranty document. The system was commercially unusable and over a long period of time Barco attempted to fix the problems and failed to do so. SNW rejected the system and claimed for misrepresentation and breach of contract (implied terms of merchantable quality and fitness for purpose). Many of the defects were software related but the judge treated the system as a whole (software and hardware) as one product. Costs were settled at £450,000 on the grounds of misrepresentation and breaches of statutory implied terms.
St Albans City District Council vs. ICL: St Albans entered into a contract with ICL for the provision of a system to run the poll tax administration. There was an admitted error in the software, which resulted in the number of poll tax payers being overstated. This led St Albans to set its poll tax rate too low, consequently, creating a £3million deficit. St Albans sued for breach of contract, relying on the express terms in the contract, as well as on implied terms under the Sale of Goods Act 1979 and for negligent misstatement by one of ICL’s employees that it was safe to take population figures direct from a screen (an on-line output). ICL argued that St Albans should have realised there was something wrong (a report printed had produced a line of zeros), that no loss had been suffered because St Albans could recover it the following year and that liability under the contract was limited to £100,000.
Although software was considered “goods” in this case, it was not necessary to decide whether or not software was “goods” for the purpose of the Sale of Goods Act 1979, as ICL was in breach of the express terms of the contract. St Albans had lost money and had a duty to recover it for the benefit of taxpayers. The fact that it had recouped its loss by increasing the poll tax charge the following year was irrelevant.
Negotiations prior to the contract had left ICL’s terms largely untouched so St Albans was treated as having contracted on ICL’s standard terms. ICL’s terms were subject to the requirement of reasonableness. The £100,000 limited clause was deemed unreasonable and unenforceable in view of the fact that ICL was a substantial company and, as they were insured for product liability to an aggregate sum of £50million, they were one of the few companies that could meet St Albans requirements and they had not justified the figure of £100,000.
The Salvage Association vs. CAP Financial Services Ltd: Salvage entered into two contracts with CAP for the design, development and supply of software. Two years later the software was incomplete and contained numerous errors. Salvage terminated the second contract (the first was complete), rejected the software and dismissed CAP. Salvage abandoned the software altogether and engaged another party to develop a fresh solution. Salvage brought proceedings for breach of contract, claiming repayment of the contract price (approximately £300,000) and damages for wasted expenditure. CAP relied on a clause limiting its liability to £25,000 in respect of each contract. Salvage claimed the terms were unreasonable and therefore, unenforceable under the Unfair Contract Terms Act 1977. Total damages were settled at just under £663,000 and Salvage could recover its wasted expenditure on the project, payments for use of computer bureau facilities, testing, wasted management time and stationery. Salvage could not recover for lost profits. This case is a prime example of what happens if a supplier tries to rely on a limitation of liability which is so low as to be out of proportion to the contract price or any potential losses under the contract. It also highlights the fact that, in order to rely on a limitation of liability, a supplier is likely to have to find an objective justification for the limitation applied.
An advertisement featured a song which sounded as if it had been sung by someone with a stammer. The ad agency was warned by the Independent Broadcasting Authority that the advertisement was bordering on being unacceptable. Once finalised, the IBA decided that not enough was done to adapt the song. The client refused to pay the agency. Cost to insurers: £140,000.
Advertising space was supposed to have been booked in the national press for a series of adverts for the Easter sale of a chain of retail stores. The bookings were made for the wrong four week period. The firm refused to pay for the media spend and also claimed financial loss for the loss in revenue from the sale. Cost to insurers: £185,000.
A media company was producing a price listing for a chain of pubs in Scotland and England. The pricing for England should have been more expensive than for Scotland. The list had the Scottish prices for England and a claim was made for lost revenue. Cost to insurers: £45,000.
Wrongly addressed mailings and incomplete mailing packs. Cost to insurers: £120,000.
A market researcher had their data encoded by a specialist firm who misinterpreted the instructions. The resulting report was not checked and the client made a claim for the delay and the cost of recoding the data. Cost to insurers: £35,000.
A PR firm involved in a campaign for a car manufacturer’s new marketing strategy on their new special service contract. The product was badged with a name that was subsequently found to have been used before by another car company. A claim for breach of copyright was made and the strategy had to be withdrawn. Cost to insurers: £250,000.
