Published in This Day Newspaper September 23, 2014
TEMILOLUWA OSINOWO LL.B(HONS), B.L
Indemnity is defined as “a duty to make good any loss, damage, or liability incurred by another”, and also as “the right of an injured party to claim reimbursement for its loss, damage, or liability from a person who has such a duty”.
An indemnity can be found as a clause in a contract, or as contract of its own. However, the most pervasive type of indemnity is found in the realm of Insurance where there are any number of policies covering any number of risks.
Insurance on the other hand, is a contract whereby, for a stipulated consideration, one party undertakes to compensate the other for loss on a specified subject by specified perils.
It is not uncommon for individuals, businesses and entities to attempt to protect themselves and the life of their businesses through the use of professional indemnity insurance.
Professional indemnity insurance (also known as professional liability insurance), as the name suggests, applies to individuals and organisations involved in providing services based extensively on personal knowledge and skills. It protects the business against claims for losses by a client or a third party if mistakes are made or the professional is found to have been negligent.
Negligence, in this sense, is a breach of the duty of care between professionals and their clients. The duty of care is an arrangement where the client expects a level of professionalism and a standard of care commonly held by those in that particular profession. In certain peculiar situations, this duty of care can extend to third parties. (See Hedley Byrne & Co Ltd v. Heller & Co Ltd)
For example, a lawyer will be said to owe a duty of care to the beneficiary of the will of a client, or to the buyer of real property to whom the seller’s lawyer passes on certain information about the property.
Professional indemnity insurance may take on different forms and names depending on the profession. For example, in reference to medical professions it is called Malpractice Insurance, while Errors and Omissions (E&O) Insurance is used by insurance agents, consultants, brokers and lawyers. Other professions that commonly purchase professional indemnity insurance include accounting and financial services, construction and maintenance, and transport. Some charities and NGOs are also insured against professional liability, particularly in western climes.
In every profession, even those with the most experience can make a mistake. The consequences to their clients however can be disastrous. Thus, professionals providing services in a wide range of situations, from Surveyors and Estate Agents to Doctors, Solicitors, Accountants, Financial Service Providers, Information Technology Professionals, etc., will be judged by the standards of those claiming to have that same set of skills and abilities.
In the Legal profession, as is expected, there is a high demand for accuracy and integrity. This amount of pressure placed by the public can easily lead to omissions and mistakes, resulting in major lawsuits against the lawyer.
It must also be reiterated here that negligence does not only happen when there has been direct contact between a professional and another party. Carelessness in the advice given can result in harm to third parties who rely on statements made or advice given by a professional in the course of his duty.
Although negligence forms the core of most professional indemnity insurance policies, claims can equally arise from, breach of professional duty or trust, infringement of patent or copyright and loss of documents among others. Which is why in some jurisdictions, indemnity policies are narrowed down to what is called Civil Liability Professional Indemnity.
This type of policy indemnifies the insured for claims arising from any civil award imposed by a civil court, as opposed to criminal liability or penalties enforced by a criminal court. A Civil Liability Professional Indemnity wording is broader than a ‘negligence wording’, as it will indemnify the insured for claims arising from strict liability where no negligence is involved. (See McKenzie & Ross, Insurance Brokers)
In England and Wales, Solicitors in private practice are mandated to take out professional indemnity insurance (PII). Outcome 1.8 of the Solicitors Regulation Authority Handbook requires you to ensure that clients have the benefit of compulsory PII.
In Nigeria, there is no regulation which mandates legal practitioners to take out professional indemnity insurance. However, it is recognised that such situations may arise where a lawyer must be held accountable for errors and omissions made.
Section 9 of the Legal Practitioners Act states that
1) Subject to the provisions of this section, a person shall not be immune from liability for damage attributable to his negligence while acting in his capacity as a legal practitioner, and any provision purporting to exclude or limit that liability in any contract shall be void.
2) Nothing in subsection (1) of this section shall be construed as preventing the exclusion or limitation of the liability aforesaid in any case where a legal practitioner gives his services without reward either by way of fees, disbursements or otherwise.
3) Nothing in subsection (1) of this section shall affect the application to a legal practitioner of the rule of law exempting barristers from the liability aforesaid in so far as the rule applies to the conduct of proceedings in the face of any court, tribunal or other body.
Although in Nigeria’s legal sphere lawyers are not required to take out professional indemnity insurance, the need for professional indemnity insurance has never been greater. This is because it safeguards a lawyers personal and business assets in the event of a claim, therefore ensuring that he/she or the practice is able to carry on their business.
It is not just the potential damages that may be payable, the insurance claim will also fund the defence of a claim made against the lawyer therefore protecting the cash flow and balance sheet of the firm.
It is important that lawyers take out professional indemnity insurance, not just as an individual, but to cover an entire firm/business/practice, as an employer of ‘legal’ labour will be responsible for any act of negligence by his/her employee in the course of employment. This is because an employee is an ‘agent’ of his employer; therefore the employer will be held ‘vicariously liable’ for any act done by the employee in the course of his employment. This is hinged on the common law doctrine of ‘respondeat superior’ (let the master answer).
A compulsory level of professional indemnity insurance cover is therefore recommended, as a necessity to be taken out by all law firms. This is important in maintaining public confidence in the integrity and standing of lawyers, as it ensures that the public does not suffer loss, which might otherwise be uncompensated.
Also, it acts as a form of confidence booster for a client to know that his lawyer has an indemnity cover. Rule 26 of the Rules of Professional Conduct in the Legal Profession provides that;
a) It is the duty of a lawyer to preserve his client’s confidences. This duty outlasts the lawyer’s employment, and it extends as well to his employees; and none of them should accept employment which involves or may involve the disclosure or use of these confidences, either for the private advantage of the lawyer or his employees or to the disadvantage of the client, without the client’s knowledge and consent, and even though there are other available sources of such information. A lawyer should not continue employment when he discovers that this obligation prevents the performance of his full duty to his former or to his new client.
This encourages the view that lawyers should do all that is legally within their power to raise public confidence in the practise of the profession. We would have woken up to this moral duty if, like in countries such as the United States of America, there was high consumer awareness sparking a rise in consumer activism.
Legal practitioners should also take into consideration that our world is fast becoming one common global market, where borders are gradually being chiselled away. Thanks to electronic platforms, international trade and business is easier to conduct, thus allowing any lawyer in Nigeria access to handle matters for a foreign client in any other country. Such lawyer will thus be held to international best practices which include having adequate insurance cover.
In conclusion, it cannot be overstated that people expect a high standard from every profession. The bar is much higher for those in the legal profession. Owing to this, a professional indemnity insurance policy is just the thing needed to ensure that all parties- the lawyer, his client, and the public- sleep better at the end of every business day.