Every freelancer providing a service to a client—code, designs, marketing materials—should be insured. It’s a manageable outlay compared to the fallout of a contract breach, mistake that needs rectified or the consequences from a missed deadline.
The claims process itself feels shrouded in mystery. Those who have faced a dispute with a client that’s escalated to the point of legal action rarely want to relive it, so we never hear of first-hand experiences of the claims process. (Well, never say never.)
Because of this, there are a lot of unknowns when it comes to insurance and that can feed into a freelancer’s anxiety.
What does professional indemnity insurance cover?
Professional indemnity is incredibly broad, but I like to distil it down to insurance for mistakes you make or problem clients. It’s going to be triggered by one of two events:
- a threat of legal action
- a third-party (usually a client) trying to recover damages
If either of these events occurred, your insurance will indemnify you for all damages and claims expenses in connection to it.
Damages = compensation owed to your client and costs payable towards settling your claim.
Claims expenses = any expenses incurred in connection with your claim, like solicitor fees.
Let’s give this some real-life context. If a client claims your late delivery of work has cost them business and they want to recover that loss from you, the insurer would appoint the necessary individuals to defend you and cover any costs owed to the client.
It’s unlikely the insurer will say, “What does the client want? £100,000? No problem!”. Instead your legal experts aim to build a defence, with the goal of minimising your liability and reducing the owed damages.
In the 9+ years we’ve been in business, we’ve yet to see a claim escalate to court. People want to negotiate and settle outside of that environment. But don’t let this fool you—working things out beyond a court room is still a significant outlay since legal experts are involved and that’s why insurance is important.
What does the claims process look like?
Since professional indemnity insurance covers so many events (breach of contract, copyright infringement), every claim is assessed individually. They tend to follow the below pattern.
First notification of loss
The freelancer notifies the insurer at their first inkling there’s a circumstance that could give rise to a claim. The insurer may ask follow-up questions to fully understand the situation before reviewing coverage.
Building a defence
If accepted as a valid claim, the insurer will ask for key pieces to help them form a defence. Depending on the nature of the claim this may include contracts, client communication, client sign-off and anything else that’s relevant to the claim.
Negotiating an outcome
The insurer will do one of two things depending on the severity of the situation. For less serious claims, they’ll guide you through what to say and how to handle your client in the hope of reaching a mutual agreement without bringing the big guns in. For more serious claims, especially where the client has already instructed solicitors to act for them, the insurer will appoint you legal experts to negotiate directly with your client on your behalf.
I think this is the part that concerns freelancers. They’re worried the outcome will be something they’ve had no say in and are unhappy with, or that it could affect their reputation. Negotiations can be a collaborative experience. It’s unlikely the insurer will suggest an outcome without talking to you and gauging your feelings. (Spoiler alert: insurers are real people, too.)
Settlement
A compromise will be reached. The more favourable outcome for you depends on how good a defence the insurer could build for you. This is why audit trails are so important.
If compensation is owed to your client the insurer will make this payment directly to them. Usually settlement is dependent on both parties agreeing to wrap things up, ensuring it’s not something you need to worry about going forward and has been put to bed.
Reflection
This part isn’t necessary but it is encouraged. You reflect on the situation. Is there anything you’ve learned that could improve future projects? Are there any processes you can implement into your workflow to avoid future problems? Sometimes there isn’t a lesson to be learned. It’s just boiled down to getting into business with a bad client.
Professional indemnity insurance is on a claims made basis
It’s important to highlight that professional indemnity insurance is on a claims made basis. It means there needs to be an active policy in place at the time the work is undertaken and when a claim is brought against you. The safest thing to do to ensure the insurer can support you is to buy insurance as close to when you start trading as possible.
Professional indemnity insurance isn’t about expecting things to go wrong. It’s about having the right team of people to support you if they do. Understanding the process removes much of the fear—and you’ll already be carrying a lot of that if you ever find yourself in a conflict with a client. Professional indemnity insurance gives you the ability to move forward with confidence.
