Members of professional organisations often have to fulfil certain requirements, and accounting bodies fall into this category. CIMA insurance rules say members of the organisation must have professional indemnity insurance in place. This is because an increasing awareness of someone’s personal options when they feel they have been wronged means there is greater focus on taking legal action in the event of a dispute.
Of course many professionals including many accountants will get through most of their working lives and careers without having to defend a legal claim. However, there is a notable chance that being sued, while it is unwelcome and can often be avoided, can be a real risk.
Furthermore, certain businesses and clients may actually insist that a professional has a form of indemnity cover in place before they are willing to conduct business with them. Examples might include local authorities, and bigger corporate clients.
CIMA insurance requirements were brought in because the challenges of a legal claim can be damaging no matter who is on the receiving end. A long and drawn out process can mean hiring legal help and even having to stump up the compensation bill if it is awarded against the professional in question.
Of course, some professionals will be able to pay for perhaps one or two legal cases of a limited nature. But claims have to be defended whether or not they are valid and even if they are untrue can run up significant legal expenses if they get far enough through the system. In the worst cases this can actually threaten the financial future of a company.
Indemnity insurance pays not only for the cost of a legal defence, but also the cost of any compensation awarded against the policyholder. In broad terms it protects the company should it be accused of making a mistake, error, omission, or act of negligence in day to day business.
CIMA insurance with indemnity also typically pays out if somebody is accused of damaging or losing important documents belonging to a client, or is said to have breached someone’s confidentiality or copyright. Policies even protect someone if they are accused of defaming somebody, perhaps through libel, for example.
