SMEs and Professional Indemnity Insurance

Picture the scene: your business provides wholesale mortar to construction companies who do not wish to mix it themselves. One has recently used solely your product in the construction of a new shopping center that is going to form the centrepiece of a massive entertainment development, to be opened with much fanfare, and the attendance of local celebrities. However, while initially your product seems to do exactly what it was intended for, after a few months it transpires that water is leaking in through the walls, and upon investigation your mortar is found to be the culprit. The opening of the shopping centre is forced to be delayed, incurring council fines, loss of business, and a number of shops have found that their premises have been damaged by the amount of water that has seeped in. It then turns out that concerns were raised within your company about this potential defect, but were ignored.

Clearly, you cannot be held liable for any physical harm to individuals, so this is not the kind of potential legal action you need to worry about. More of concern is the range of corporate charges that may be bought against you; from a negligent attitude towards the fidelity of your product to its misrepresentation to the client, as well as a range of demands for compensation of the basis of different interpretations of malpractice. The shop owners could legitimately argue that not only have you cost them in terms of damage to their potential earnings, but have caused damage to both their reputation and their potential future income through their association with the substandard shopping complex.

It’s incidents like this that make commercial insurance an essential defence for a wide range of professions; often it can be the difference between allowing your company the support and resources to defend itself, and its sinking under financial penalties.

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