Professional Indemnity – 5 Real Life Claims Examples
For many UK limited company contractors working outside IR35, professional indemnity insurance is not just a ‘nice to have’ policy. It is often a contractual requirement before they are allowed to start an assignment. End clients and agencies want assurance that, if the contractor makes a professional mistake i.e. an error or omission whilst providing their services, that causes financial loss, there is an insurance policy in place to help resolve the issue without placing the wider supply chain at risk.
Professional indemnity insurance is designed to protect contractors against claims relating to negligence, errors, omissions, poor advice, breach of professional duty and, in some cases, loss of documents or unintentional breach of confidentiality. For contractors, it can also help demonstrate that the contractor is operating as a genuine business, taking on commercial risk and holding their own business protections.
Below are some common examples of professional indemnity claims, with approximate values, and how cover can protect both the contractor and the wider supply chain.
1. IT contractor causes a system outage
An IT contractor is engaged to update a client’s internal software platform. During the work, a coding error causes a major system outage, leaving the client unable to process orders for several hours. The client alleges that the contractor failed to test the update properly before deployment.
Approximate claim value: £25,000 to £100,000+
This could include lost revenue, the cost of emergency technical support, internal staff time and compensation to the client’s own customers. Without professional indemnity insurance, the contractor’s limited company could be expected to fund the defence and settlement itself.
The policy will cover legal costs, expert technical reports and any agreed compensation, depending on the policy terms. This helps protect the contractor’s business while giving the client and agency a route to recover losses without the relationship turning into a prolonged dispute.
2. Project manager misses a critical deadline
A project manager working through their limited company is brought in to oversee the delivery of a business transformation project. Due to alleged poor planning and failure to flag risks early enough, the project runs significantly behind schedule. The end client claims that the delay caused additional supplier costs and missed commercial opportunities.
Approximate claim value: £50,000 to £250,000
Professional indemnity insurance can be particularly valuable where there is a disagreement over responsibility. The contractor may argue that delays were caused by the client’s internal decision-making, lack of resources or changing requirements. The insurer can help fund legal defence costs and negotiate a settlement where appropriate.
This protects the contractor from facing the dispute alone and helps prevent the agency or consultancy in the middle of the supply chain from being pulled into an expensive argument.
3. Engineering contractor provides incorrect calculations
An engineering contractor is asked to provide technical calculations for a manufacturing or construction-related project. After work has begun, it is discovered that part of the design contains an error. The client has to pay for redesign work, replacement materials and delays to the project.
Approximate claim value: £75,000 to £500,000+
In technical sectors, even a relatively small mistake can create a large financial impact. Professional indemnity insurance can help cover the costs of investigating the error, defending the contractor’s position and paying compensation if the contractor is found liable.
For the supply chain, the existence of PI cover is important because it means there is a financial safety net behind the contractor’s professional services. This can reduce the chance of losses being passed up or down the chain.
4. Business consultant gives flawed advice
A management consultant recommends a new operating model, cost-saving process or supplier strategy. The client later claims that the advice was based on incomplete analysis and caused financial loss, disruption or wasted implementation costs.
Approximate claim value: £20,000 to £150,000
Claims involving advice can be complex because the contractor may have delivered recommendations rather than guaranteed results. However, if the client alleges that the advice was negligent or below the expected professional standard, the contractor may still need to defend their business.
Professional indemnity insurance can fund solicitors, negotiation costs and settlement discussions. Even where the contractor has done nothing wrong, the cost of proving that can be significant.
5. Data handling or confidentiality mistake
A contractor accidentally sends commercially sensitive information to the wrong party or mismanages confidential project documents. The client claims that the mistake has caused reputational damage, commercial disadvantage or regulatory concerns.
Approximate claim value: £10,000 to £100,000+
Some professional indemnity policies include cover for unintentional breach of confidentiality, although the scope varies. In serious cases, cyber liability or data protection cover may also be needed. Where the PI policy responds, it can help with legal advice, client negotiations and compensation claims.
This protects the contractor’s limited company and reassures the client that the issue can be handled professionally rather than escalating into a wider contractual dispute.
Why PI insurance matters for outside IR35 contractors
Contractors working outside IR35 operate as independent businesses, not as disguised employees – especially when they have used an online IR35 assessment tool. That means they are expected to accept a degree of commercial responsibility for their work. Holding professional indemnity insurance supports that position by showing that the contractor has arranged appropriate business protection.
It also gives confidence to clients, agencies and other parties in the supply chain. If something goes wrong, there is a process for dealing with the claim, funding legal support and compensating genuine losses where liability is established.
For the contractor, the main benefit is simple: one professional mistake, allegation or misunderstanding does not have to threaten the future of the limited company. PI insurance helps protect cash flow, reputation, client relationships and the wider commercial chain that relies on the contractor’s services.
