If public liability insurance is in general well understood by the insureds, it goes differently with the professional indemnity insurance. Professional indemnity insurance is often overlooked, misunderstood, or seen as a complex line of insurance that only lawyers or architects buy. This article should help you understand better what the public liability insurance and the professional indemnity insurance in Hong Kong are.
1 – Why are we mixing up these 2 insurances if they are so different?
The answer is very simple. They are both a liability type of insurance who cover your civil liability, meaning your exposure of being sued by someone who is suffering a loss because of you. The civil liability is the legal responsibility for every individual, business, or organization to compensate a third party because a civil law violation, a tort or a breach of contract has made this third party suffered a loss.
However, these 2 insurances are not covering the same type of civil liability exposures.
2 – What type of civil liability is covered?
The public liability insurance basically covers operational and premises exposures arising out of the business for civil wrongs. It could be a nuisance or a negligence causing losses to a third party. There are lots of examples in our daily life of civil wrongdoing that could potentially trigger a public liability claim: a slip and fall on a wet floor in an office or retail shop, a water leakage due to a pipe break causing flooding at your neighbors, a piece of a building falling down on a car parked in the street …
Public liability insurance is not mandatory in Hong Kong but if you have a business, the chances are you will need it.
The professional indemnity insurance basically covers professional mistakes arising out of the conduct of the Professional Business. It could be a negligence leading to inadequate advice, services or designs that cause the third party to lose money. It could be a breach of confidentiality or the infringement of intellectual property rights.
Professional indemnity is not mandatory in Hong Kong except for certain occupations such as lawyers or insurance brokers, however, other occupations would need to buy one or should at least consider buying one.
3 – What does it cover?
Both insurances aim to cover the legal costs (to defend your case) and the compensation of the loss suffered by the third party, generated by your civil wrongdoing. However, they do not cover the same type of damage.
The public liability insurance covers bodily injuries and material damages but will most likely not cover financial losses that are not a consequence of the bodily injuries or material damages (pure financial losses).
Not only it does not cover pure financial loss, but public liability will contain a professional services exclusion meaning that the failure to render professional advice or service by the Insured will not be covered in the public liability insurance.
Professional indemnity covers financial losses caused to a third party because of your professional negligence. Professional indemnity insurance can cover you if a client loses money as a result of negligence in your advice, services or designs.
It is important to notice that unless specifically negotiated, professional indemnity insurance will not cover bodily injuries or material damages.
4 – Business case
If this is still not clear for you, lets take an example. An HR consulting company signs a service agreement with a bank whereby the bank is asking the HR company to buy “any insurance policy necessary to cover their civil liability”. What does it mean? Does the HR company need to buy a public liability insurance AND a professional indemnity insurance?
As written above, the public liability is about operation and premises exposures. So, if you are mean to rent a venue to do some training or if you are organising outside team building, you should buy a public liability insurance. Now if you are a boutique HR company giving advice and guidance to the employees of the bank via skype or small interview in your office or at the bank office, the public liability exposures exist but they are rather low.
What about the professional indemnity then? The professional indemnity covers your breach of professional duty. As an HR consulting company, one could say that exposures are not as high as exposures for lawyers or architects, however, HR consulting company still have a strong duty of care toward their client and their employees. As instance, if you are providing coaching, the guidance given could not be appropriate or you could disclose some confidential information and cause financial damages. If you are doing some recruitments, there few chances that background checks could be done wrongly.
In the end, if the public liability insurance could be avoidable in certain circumstance, the professional indemnity is a MUST HAVE in this situation to fullfill the contract requirements.
Still having question about public liability and professional indemnity insurance in Hong Kong
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