Professional Indemnity Insurance for Small Businesses – What Kind of Legal Risks are Covered?

The law can seem like a minefield for many small business owners and this is why having a solid Professional Indemnity cover as part of a bespoke business insurance plan is so important. For SMEs and independent contractors offering professional advice and services, such as business consultants, graphic designers and private tutors, this type of protection is essential.

Professional Indemnity insurance, also known as PI insurance or professional liability insurance, covers the potentially huge legal costs you’ll face if a client decides to lodge a claim for compensation against you because they’re unhappy with the services you’ve provided.

But what kind of scenarios could lead to a small business owner facing such a legal battle? As specialists in Professional Indemnity insurance, The Insurance Octopus has put together a guide to some of the main legal risks faced by businesses in the UK today.

Professional negligence

If the quality of services provided doesn’t meet a client’s expectations and they end up losing money or incurring other damages as a result of your work, you could find yourself accused of professional negligence.

A difficult client with unrealistic expectations or a small mistake on your behalf that even the most competent of professionals is capable of making is often all it takes for a situation to spiral out of control. A translator could provide an inaccurate translation for packaging copy that gets printed across the world for a huge corporation.

The costs of rectifying this mistake would be considerable and professional indemnity would be essential in covering the compensation costs that would otherwise potentially push a small business towards financial ruin.

Loss of data

A client could sue for loss of data if important information goes missing or is compromised due to your mistake or the failure of a system that was recommended or created by you.

An increased demand in businesses and individuals relying on cloud solutions to store their data means there is more risk than ever of independent contractors facing legal implications if files they were hired to protect are lost.

Another scenario could involve a corporate photographer losing all of the images taken at an important business event due to a corrupt memory card.


While it is easy to associate defamation with charges made by celebrities against media outlets that publish sensationalist stories, small business owners can also find themselves facing charges for libel or slander.

Online platforms like social media making it easier than ever to make potentially defamatory statements against a difficult client. There’s always a risk of making a mistake in the heat of the moment and having to deal with unforeseen repercussions.

You could accidently forward an email with defamatory comments about a client to all of your contacts, including said client. If the published content is disparaging and has the potential to damage the reputation of the client, they could see fit to take legal action.

Breach of contract

On most occasions, contractual relations with your clients will run smoothly. Everything is agreed upon upfront and you follow through effectively on the services you’ve been hired to carry out. However, sometimes it’s possible to inadvertently find yourself in breach of contract.

If you fail to meet deadlines or don’t provide the right services, even if you have good reasons for this, you are in breach of contract. Even something as seemingly innocent as mentioning a client in your online portfolio could be enough to land you in hot water if you’ve signed a Non-Disclosure Agreement (NDA) stating that the client should remain anonymous.

With so much at stake, it makes sense to protect your livelihood with a quality business insurance package.

Secure your business today with professional indemnity insurance from The Insurance Octopus.