# Professional indemnity insurance

Source: https://contracko.com/glossary/professional-indemnity-insurance

# Professional indemnity insurance

Cover for financial loss caused to clients by professional errors, advice or negligence.

## 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.

### How Contracko helps

Contracko tracks insurance obligations in your contracts and sends expiry reminders so that a professional indemnity certificate due for renewal does not slip through unnoticed. Storing the insurance clause and the certificate in the same contract record means you can verify compliance and the agreed coverage limit in one place.

## Legal references

- [BW 7:925 Dutch Civil Code: insurance contract Dutch law](https://wetten.overheid.nl/BWBR0005290)

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.

## Relevant for

[Legal Services](https://contracko.com/industries/legal-services)[Accounting & Audit](https://contracko.com/industries/accounting)[Consulting](https://contracko.com/industries/consulting)[Engineering & Architecture](https://contracko.com/industries/engineering)

## Related clauses

- [Insurance Obligation Clause](https://contracko.com/clause-library/insurance-obligation)
- [Limitation of Liability Clause](https://contracko.com/clause-library/limitation-of-liability)

## Related terms

- [Public/general liability insurance](https://contracko.com/glossary/public-liability-insurance)
- [Duty of care](https://contracko.com/glossary/duty-of-care)
- [Liability](https://contracko.com/glossary/liability)
- [Liability limitation](https://contracko.com/glossary/liability-limitation)

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## Frequently asked questions

Common questions about this term.

- **Q:** What is the difference between professional indemnity and public liability insurance?
  **A:** Professional indemnity covers purely financial loss caused by errors in professional advice or services. Public liability (AVB) covers bodily injury and property damage to third parties. The two products are complementary and many professional service businesses need both.

- **Q:** What does "claims-made" mean in the context of professional indemnity?
  **A:** A claims-made policy covers claims that are made against the insured during the policy period, regardless of when the underlying error occurred. This means that if a policy lapses, errors made while cover was in force may not be covered if the claim is made afterwards.

- **Q:** Is professional indemnity insurance mandatory for all professions in the Netherlands?
  **A:** Not universally, but many regulated professions are required by law or professional rules to maintain it, including lawyers (Advocatenwet), notaries, accountants and certain financial advisers under the Act on Financial Supervision (Wft).

- **Q:** Can a professional indemnity policy exclude certain types of advice?
  **A:** Yes. Policies frequently exclude specific activities such as insolvency work, tax fraud defence or advice on transactions above a certain size. Professionals should review exclusions carefully to ensure the policy aligns with the services they actually provide.

- **Q:** Does professional indemnity insurance also cover the cost of defending a claim?
  **A:** Yes. Most professional indemnity policies cover defence costs, which can be substantial even where the insured ultimately succeeds. Defence costs are often paid in addition to the indemnity limit, but this varies by policy.

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