Having to use your professional indemnity insurance isn't always as a result of you making a mistake. Sometimes you land a client who just isn't happy with the work you've completed and the situation unravels.
We watched this happen with one of our customers.
Names have been changed to respect our customer's privacy.
Frank was hired to develop a browser extension and web platform, but his client misunderstood the spec.
When Frank had finished building the work he had agreed to do, his client complained of missing functionality—despite this functionality not being in the initial spec.
This wasn't a problem. Frank could build that functionality for a further fee.
If you're a freelancer or creative business, you're probably familiar with scope creep. That's what was happening here… with the client wanting the extra work completed for free.
At this point the situation unraveled. Not only did the customer refuse to pay Frank, but he threatened to involve solicitors if Frank didn't co-operate.
The problem with being a freelancer or small business is that clients may assume they can take advantage.
They can view you as being a small entity and unable to fight back, therefore make unreasonable demands.
Fortunately, Frank had a professional indemnity policy arranged through Jack. This meant that he wasn't a small entity—he had a team behind him; legal experts, solicitors and his insurer.
The insurer appointed Frank a solicitor. The solicitor was able to help Frank communicate with his client in the best possible way, avoiding further aggravation and the problem escalating.
Frank no longer looked like a small entity to his customer and the threats of legal action were dropped.
Frank's professional indemnity policy also had a mitigation costs clause, which can help if conditions are satisfied.
If your client is dissatisfied with your work, refuses to pay for any or all of your fees and threatens to bring a claim against you, the insurer can pay you the amount owed to you by your client if it will avoid a claim covered under your insurance for a greater amount.
Frank received £9000 from his insurer for the unpaid fees.
It's not only the financial factor that helped Frank, but the emotional support he received in a time that was stressful.
Many freelancers and small businesses still don't consider insurance, despite offering professional services and dealing with clients.
I don't want to think about how many times the situation above has happened—or will happen—to businesses that don't have professional indemnity insurance.
Professional indemnity insurance can cost you £14 per month. The risk of a client refusing to pay an invoice is exchanged for a smaller sum of money.
Your insurer steps in to resolve the matter, providing you with emotional, legal and financial support if needed.
If you're a creative business operating without insurance, use this as a gentle nudge to get insured.