Professional Indemnity: Beyond the “Box-Ticking” Exercise
From Negligence to Comprehensive Civil Liability
Many businesses treat Professional Indemnity (PI) as a compliance checkbox. That view can be expensive. PI now often covers a wider range of civil liabilities than classic negligence claims. Policies may respond to allegations about misleading advice, failure to disclose material information, breach of confidentiality, or errors in contracted services even when no straightforward negligence is alleged.
Overlooked Risks: AI Disclosure and Subcontractor Accountability
The Immediate AI Risk: Transparency Matters Now
Using AI in client work introduces a distinct exposure: disclosure risk. A model that is accurate can still trigger claims if clients say they were not told how recommendations were produced, or if explanation obligations are unmet. PI policies may not automatically cover reputational or contractual claims tied to inadequate AI transparency. Businesses that rely on AI should check whether their PI covers alleged omissions, misrepresentations about methodology, and defense costs for regulatory inquiries.
The Enduring Challenge: Subcontractor Liabilities
Outsourcing to freelancers and subcontractors shifts operational risk but not always legal responsibility. Clients often hold the contracting firm accountable for third-party errors. Many PI policies exclude or limit cover for subcontracted work unless specific conditions are met. Gaps commonly appear around vicarious liability, insured contract wording, and requirements for subcontractor insurance.
Proactive Protection: Understanding Your Policy
SMEs and tech firms should move from passive to tactical risk management. Practical steps:
- Map services and AI touchpoints so you know where disclosure gaps could arise.
- Review policy wording for civil liability, insured contract clauses, and subcontractor extensions.
- Require indemnity and minimum insurance from subcontractors and keep evidence of cover.
- Ask brokers about endorsements for AI-related misrepresentation, run-off cover, and claims-made vs occurrence triggers.
- Maintain an audit trail for AI outputs and client communications to support defense costs.
Treat PI as a risk-management tool, not a cost centre. A targeted review of policy scope, contracts, and AI practices can convert hidden exposures into manageable business decisions.
