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Professional indemnity insurance in New Zealand

Protect your business from potential legal costs and claims with professional indemnity insurance.

Does your business rely on providing a professional service or advice? If so, there’s always the chance of human error and this can leave you liable if something goes wrong.

What is professional indemnity?

Professional indemnity (also known as personal indemnity insurance) is designed to cover the potential costs of unforeseen mistakes for both self-employed workers and businesses across many different industries.

As a professional you probably know what you’re doing. However, there’s always a chance of making errors. What seems like an innocent mistake can actually cost you a lot of money.

Let’s say you’re a building surveyor and you issue a permit for a housing project and later the property owner finds issues with the building (and sues the builders). The fault may come back to you, e.g. for not properly checking the building plan before issuing a permit.

This is where professional indemnity (PI) insurance comes in.

What’s covered (and what’s not)

Professional indemnity is designed to cover the policyholder for any third party damage that may be incurred if a client files a claim. Any ensuing compensation that may be required to be paid to the client from the individual or business is also covered.

Some policies will offer cover for claims from clients for financial loss, bodily harm or damage to property due to errors in the provision of the service. An example could be a medical professional providing incorrect advice and then having to cover the clients subsequent medical expenses.

What is covered

  • Damages and compensation costs against you
  • Legal fees
  • Court fees
  • Public relations fees
  • The cost of investigation
  • Defamation

What is NOT covered

  • Damages to property
  • Fraud
  • Accidental injury
  • Damages from intentional acts
  • Intentional damage

Detailed list of examples

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Do I actually need professional indemnity insurance?

Any time advice is provided to clients, you should consider professional indemnity insurance.

Despite your utmost care, mistakes and lack of judgement can happen in the workplace and will often lead to the professional’s client seeking compensation for damages. A professional can still be liable for losses even if the mistake was not a result of their own negligence. Even if the claim is illegitimate, you may still need to go through the legal process of defending yourself against it.

Professional indemnity insurance ensures your business can continue to operate despite having to cover legal costs.

Here are some situations where professional indemnity insurance could be applicable:

  1. You offer a professional service. If a small mistake in your work could cause your client grief then cover is essential, e.g an architect who incorrectly develops a building plan.
  2. You consult or provide advice. If your advice causes harm then you could be eligible to be sued.
  3. You treat people or even animals. If you’re a veterinarian or a medical consultant you will need cover.

Case studies for specific occupations

Some of the industries now prioritising professional indemnity insurance include financial advisers, lawyers, tradespeople, marriage celebrants, beauty therapists, engineers, personal trainers and graphic designers. Here are some real life examples of professional indemnity insurance claims:

Are you employed or a contractor?

Most New Zealand workers are covered under their employer’s liability cover, however any worker carrying out any consulting or contracting work must ensure that they have adequate and appropriate professional indemnity insurance in place.

All professionals should take the time to review the current cover they have in place and assess whether it is worth them taking out additional cover to ensure they are protected from claims against errors or omissions they have made in the provision of their professional activities.

Services that generally require professional indemnity insurance

As mentioned previously, anyone that provides advice or a service to another in an established discipline is a potential candidate for professional indemnity insurance. Some typical professions that will usually require professional indemnity insurance include:

  • Consultants
  • IT professionals
  • Accountants
  • Architects and designers
  • BAS Agents
  • Engineers
  • Finance and mortgage brokers
  • Nurses
  • Real estate agents
  • Recruitment consultants
  • Beauty and massage therapists, and physiotherapists
  • Psychologists
  • Travel agents and tour operators
  • Veterinarians.

Many professions work closely with New Zealand governing bodies to determine an appropriate level of professional indemnity cover that is required for their profession. Regulations around what types of insurance are mandatory for different industries can vary. It might be best to consult with your industry body to get a clear understanding of the specific types of cover you require.

What about these types of business activities?

Features of professional indemnity to understand

There are some important policy features that you should understand when it comes to professional indemnity

Professional indemnity is designed on what’s known as a “claims made” basis. This means the insurer who you were with at the time a claim is made is responsible for handling the claim. As opposed to the insurer you had at the time of the event occurring (unless you are using the same insurer). Here’s a general idea of what it looks like

“Claims made” vs “Claims occurring”Policy typeWhen is the policy “active”?What’s this mean?
Claims made Professional indemnity insuranceThe day you become aware of a claim and give notice to the insurer.If you switched insurers after the event occurs, but the claim is made under a new insurer then they must handle the claim.
Claims occurring Public liability insuranceWhen the event that results in a loss occurs.If you switch insurers after the event occurs, the old insurer is still responsible for handling the claim.

This means that the insurer must work to settle the claim even if the event leading to the claim took place when the policyholder was insured under another policy. This ensures that workers that have changed employers are still covered for events that took place for service provided to previous clients.

It is not unusual for many claims against professionals and businesses a few years after providing service to the client.

Run off cover provides an extension of the policy cover after policyholder has stopped trading, e.g. the business has been sold, foreclosure, a merger or the policyholder has retired.

How long should run off cover be taken out for?

This will vary between individuals and organisations. Government bodies can provide advice on an appropriate run off period based on the service provided. It is best to review the legislation on the profession to determine how long following the provision of the service that claims can be filed and legal proceedings commenced against a professional.

Fidelity insurance is a form of additional cover that protects the policyholder for direct losses suffered as a result of dishonest acts of their employees. Fidelity insurance generally covers loss or misappropriation of client’s funds that were under the control of an employee in their business. This cover can be taken out as a separate policy or included as an extension of the standard professional indemnity insurance policy. Common exclusions for fidelity insurance:

  • Loss must be discovered by the insured during the period of insurance
  • Insurer must be notified of loss within a specified period of time. This will be outlined in the policy disclosure statement
  • Cover is not provided for losses that have occurred following the discovery by the insured of such conduct by the principal, director or employee or after the insured had reasonable grounds for suspicion of the act occurring
  • Indirect or consequential loss is generally not covered. This may include liability to third parties, trading losses, investigation costs or damages of any kind
  • Insured must be able to substantiate to the insurer any loss covered by this policy extension
  • Each policy will have a sub-limit applied for liability payable to the insured in the event of a loss occurring
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Three tricky terms to also be aware of

1. The Policy Retroactive Date

The retroactive date refers to the date after which your professional indemnity insurer will cover any acts, errors or omissions committed by you. In other words, any acts, errors or omissions that occur prior to this date will not be covered by your policy.

There are two ways in which the retroactive date can be listed – unlimited or specified – so you’ll need to check the fine print of your policy to see which definition your insurer uses.

  • Unlimited Retroactive Date: The insurer will cover claims relating to acts, errors or omissions regardless of when they occurred.
  • Specified Retroactive Date: Policy restricted to cover claims that arise from acts, errors or omissions that occur after the date outlined in your policy documents.

Some insurance brands limit the retroactive date to the time your business first took out professional indemnity cover but, ideally, you will typically hope for the retroactive date to not be any later than the date your business began offering services to customers. If you change to a different professional indemnity insurer, in most cases the retroactive date in place will be carried forward by the new insurer so that past work you have performed is still covered.

2. Costs inclusive vs exclusive limit of indemnity

The limit of indemnity is the maximum amount an insurer will pay in regard to any one claim made against you. However, it’s important to check whether your policy has a costs inclusive limit of indemnity or a costs exclusive limit of indemnity.

  • Costs Inclusive: Includes defence costs in the maximum amount it will pay for a claim. So if your policy offers $3 million cover, costs inclusive, and if a claim is made against which requires you to pay a liability of $3 million to the claimant but also sees you incur legal defence costs of $300,000, your policy will only cover the $300,000 of legal costs plus $2.7 million of liability. That leaves you with $300,000 left to cover out of your own pocket.
  • Costs Exclusive: Legal defence costs are covered in addition to the limit of indemnity, which means it could be a more desirable option for most businesses.

3. Costs exclusive vs inclusive excess

It’s also important to check whether the excess payable under your professional indemnity insurance policy is costs exclusive or costs inclusive. With a costs exclusive excess, you won’t have to pay an excess when you incur legal costs during the successful defence of a claim. Instead, you’ll only have to pay an excess if you have to pay compensation in respect of a claim.

On the other hand, a costs inclusive excess is payable when you incur defence costs – regardless of whether you end up having to pay compensation to the claimant or not. That’s why it makes sense to look for a policy that offers a costs exclusive excess.

How much cover do I need?

Unfortunately there is no set answer for how much cover you should take out. Every business is different and there are different regulations in place for minimum cover required for certain professions. These requirements can also vary from industry to industry. Some other factors to consider that will impact what you pay for cover include:

  • Clause of contract. Most contracts will specify a minimum amount of cover that the worker must have in place to carry out the project.
  • Type of project and value. This is the correlation between the value and size of the project being undertaken and the workers exposure to claims for professional negligence.
  • Perceived exposures. Assessment of possible causes of loss, injury or damage that may lead to a claim being brought against you.
  • Number of parties relying on advice. If the nature of the project means that advice will be passed onto more than one party, the worker may be liable for claims from other parties affected.

Determining an appropriate level of cover is no easy task. It’s worth taking the time to speak with a financial adviser to help you assess the risks you are exposed to and what protection packages may be suitable.

Professional indemnity vs public liability

ComparisonProfessional IndemnityPublic liability Insurance
What’s covered
  • Covers legal liability for claims arising from an act, error or omission of duty by the professional
  • Cover can include claims for personal injury, professional injury or financial loss
  • Provides cover for claims made for actual breaches of professional duty
  • Provides cover for legal liability due to personal injury or property damage caused by your business
  • Product liability is an extension of public liability providing cover for personal injury or damage caused by the use of your products
  • Cover may not always extend to claims for financial loss if there has been on injury or damage
Types of business it’s designed for
  • Any business that provides professional advice to its clients.
  • Any business that works with clients in public spaces.
More details
  • Does not cover accidental injury
  • Event giving rise to the claim will often have to occur within the period of insurance for cover to apply
  • The claimant must be able to establish that the cause of the loss has direct connection to the business.

Can I get covered for both under one policy?

  • Yes you can.

One of the main reasons that people often get confused between these different types of cover is because many policies will provide cover for public, product and professional liability under the single policy.

How will I know if I have combined cover?

This is usually outlined in the product cover features and exclusions though it can be difficult for applicants to know exactly what events they will be covered for. Many professional indemnity insurance policies will have exclusions in place for injury or damages to property and vice versa.

As an example, a professional indemnity insurance policy may have the cover extension that provides cover for claims arising out of “manufacturing, loss or faulty workmanship” though this may recognise personal injury or damage to property as a loss.

What are the risks of a combined policy?

The risk is that many policyholders may actually be significantly underinsured from particular losses by relying on one umbrella policy to provide adequate cover for public, product and professional liability. It is worth speaking to an insurance consultant to help them find and tailor a policy closer to their needs.

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How much does professional indemnity insurance cost?

Professional indemnity insurance is not one-size-fits-all. The cost for cover can vary dramatically depending on the insured’s cover needs, the types of clients serviced and the size of the business.

When negotiating a competitive premium, the following factors are taken into consideration:

  • Number of staff employed by company and annual turnover. Sole traders or companies with say 15 employees won’t require the same level of cover as large-scale organisation.
  • Types of clients that the company/professional services. Professionals that work on large-scale, multi-million dollar projects will require a higher level of cover than smaller firms.
  • Industry. Industries like construction carry higher risks and make more claims than other industries and this affects the premium that can be offered to clients.
  • The specific business activities and risks. Even within the same industry, different businesses or independent contractors will have a specific niche or risk associated. A full assessment of your business activities is recommended to ensure the most appropriate cover.
  • Policy inclusions and exclusions. Obviously more comprehensive protection packages with increased levels of cover will cost more than basic policies.

Some additional factors you might not realise

  • Previous claims history. If no claims have been made against a client then a lower premium can be arranged.
  • The amount of excess you’re willing to pay in the event that a claim is made. A higher excess can enable you to pay a lower premium. This does mean more comes out of your pocket during claim time.
  • The statutory requirements for each industry. Some industries require a minimum PI insurance coverage is usually $1,000,000. The higher the cover you require, the more expensive your premium will be.

Should I just compare price?

Don’t just compare on price. Professionals should be on the look out for insurers who:

  • Understand their particular industry and manage policies of other similar businesses
  • Can produce evidence or reviews of favourable outcomes for clients when claims are made
  • Are approved by the governing body and membership association of your industry
  • Have clear policy guidelines regarding inclusions and exclusions and communicate them to you so you know exactly where you stand
  • Take a personal approach and assess your business specifically to identify the proposed risks in order to assign adequate cover.

It is important to get a number of quotes and talk to a variety of insurers before committing to any particular policy.

How do I compare professional indemnity insurance?

With so many different cover options available on the New Zealand professional indemnity insurance market, it is crucial that any sole trader or business looking to take out cover take the necessary steps to compare different options to ensure they are receiving adequate cover at the right price.

  • Default cover features: It is critical that anyone looking to take out cover closely review the cover features listed in the product disclosure statement to know exactly what liability they will be covered for. Refer to this section for an overview of typical cover options.
  • Policy extensions: Most policies will offer a number of additional cover options to applicants to ensure there is an adequate level of cover in place. Such extensions may include run off cover and fidelity insurance.
  • Limit of liability: Each insurer will clearly state the maximum compensation that will be paid for each claim within the product disclosure statement.
  • Policy exclusions: Each insurer will have its own set of exclusions for when a policy will not be paid. It is critical that these are reviewed closely when comparing policies to avoid any surprises in the event that a claim is made further down the track. It is not enough to just skim over these…the conditions for payment must be closely reviewed and understood.
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When is professional indemnity insurance compulsory in New Zealand?

Depending on your location and occupation, you might need to get professional indemnity cover before you can legally provide your services.


Other times, it might not be mandatory, but will be required in order to develop your career. For example, you are required to hold professional indemnity insurance in order to become a Certified Practising Accountant (CPA) in New Zealand.

Industry requirements

Meanwhile, other industries have professional indemnity insurance requirements. For example, you cannot practice as a physiotherapist in New Zealand without professional indemnity insurance.

How do I make a claim?

In the event that a claim is made against the insured, it is their duty to inform the insurer as soon as possible. Notice is to be put in writing and sent to the insurer by courier or certified mail. The insurer will recognise that notice has been received once their underwriting division has received the notice.

Every letter, demand, writ, summons and legal process pertaining received by the insured related to the claim must also be forwarded across to the insurer. Most insurance brands will have a claims form located on their website for the insured to complete. These will usually be comprised of the following sections:

  • Details of the insured
  • Policy details
  • General information about the claimant or potential claimant
  • Details of the insured’s retainer/contract
  • Details of the claim or circumstance
  • Details of the insured’s response
  • List of relevant documents that have been attached to the claim form
  • Insured’s declaration

Frequently asked questions

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