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Back to basics: what is professional indemnity insurance and why do you need it?

26 June 2019

Real estate is one of the most highly legislated and regulated industries in NSW. Property transactions are complex and ever-changing with the constant introduction of new technology. 

This means real estate professionals are open to a range of potential risks.

There’s a lot of information available that warns of the risks of not having the right professional indemnity insurance.

There are numerous articles and case studies (many available on this site) that address cybercrime, discrimination claims and negligence. But a common question asked is how professional indemnity insurance protects agents facing these issues.

What is professional indemnity insurance?

As a professional agent, you provide expert advice and services every day, and you have the experience and confidence to guide your clients through the complexities of property transactions. 

However, in performing the role of a professional advisor, the information and service you provide is under high scrutiny. 

Whether you are a residential or commercial sales agent, property manager or licensee-in charge, if you make a mistake – or are perceived to have made a mistake – that results in financial loss for your client, you could face a malpractice or professional misconduct claim.

Professional indemnity insurance protects you and your business from financial consequences arising from an actual or alleged breach of duty or act of omission. 

How could a professional indemnity claim arise?

A professional indemnity claim can arise from the day-to-day conduct of an agency. Most claims are made (and won) over minor oversights, not just for gross misconduct. 

Liability arising from any acts or omissions of the licensee that constitute negligence, misleading or deceptive conduct, breach of professional duty, unintentional defamation or unintentional interference with intellectual property rights could all result in a claim made against an agent. The professional indemnity insurance policy must provide cover for these types of matters.

Agencies are subject to vicarious liability arising from any acts or omissions of an employee, agent or other person engaged in the agency business. These include the acts or omissions relating to agents (as outlined above), with the addition of fraud or dishonesty by the employee, agent or other person.

What to consider when selecting professional indemnity insurance

First and foremost, the insurance you choose must meet the needs of you and your business and you should always read the Product Disclosure Statement.

Before you commit to a policy, you should ensure it complies with current legislation. 

The NSW Government requires that all licence holders under the PSBA Act hold a minimum of $1 million professional indemnity insurance for any one claim and a minimum of $3 million in the aggregate for all claims made during the period of insurance. A licensee must be insured under a policy of professional indemnity insurance in force with respect to the licensee, or the licensee’s employer. However, a licensee is not required to be insured under clause 10 of the Property, Stock and Business Agents Regulation 2014 (NSW) if it engages in certain types of commercial property agency work. As a contractor, you should have your own insurance. 

You should also check that the cover is inclusive of costs, so legal costs and damages are also insured, and assess what other areas of your business need cover and take action to protect them.

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