Professional indemnity insurance

Definition

Professional indemnity insurance (in the Netherlands the BAV) covers liability for purely financial loss that a professional causes to clients through errors, omissions or negligent advice. It is essential for advisory professions such as lawyers, accountants, consultants and engineers, where mistakes tend to cause financial rather than physical harm. It complements general liability insurance, which excludes such advisory errors.

Example

An accountant's professional indemnity insurer covers a client's loss after a filing error triggered an avoidable tax penalty.

Why this is a business risk

Professionals without adequate BAV cover can face claims that run into multiples of their annual fees from a single error, particularly in sectors where financial advice directly influences major client decisions. A contractual obligation to maintain professional indemnity insurance that is left unverified can give a client a false sense of protection if the policy has lapsed or its limit is insufficient. The claims-made structure of most BAV policies means that cover must still be in force when the claim is made, not just when the error occurred.

How to manage it

• Maintain BAV cover continuously and check at each renewal that the policy limit reflects the scale of engagements and the potential financial loss to clients.
• When contracting with a professional service provider, require them to provide a certificate of professional indemnity insurance and to notify you if it lapses.
• Understand the claims-made basis of your policy: if you retire or change insurers, arrange run-off cover so past work remains protected.
• Check whether sector-specific regulation (for example for accountants, lawyers or financial advisers) mandates minimum cover levels or approved policy wordings.

Legal references

• BW 7:925 Dutch Civil Code: insurance contract Dutch law

Unless marked otherwise, references are to Dutch law (Burgerlijk Wetboek, the Dutch Civil Code); EU instruments such as the GDPR apply across the EU. This is general information, not legal advice. Other jurisdictions treat these concepts differently. Verify the current text and your situation with a qualified lawyer.