An Introductory Guide To Business Insurance For Designers And Developers

Original Source: https://www.smashingmagazine.com/2018/03/guide-business-insurance-designers-developers/

At some point in your career, most web designers and developers can relate to issues with scope creep, unexpected project delays, client relationships breaking down, and unpaid invoices. The good news is that there’s an insurance policy to help with these scenarios. In the UK, we call it “professional indemnity insurance.” Elsewhere, it can be called “professional liability” or “errors and omissions insurance.”

Let’s explore what this insurance is and how it’s designed to keep web professionals in business. I’ll also be sharing real stories of businesses who were glad they had insurance.

What Is Professional Indemnity Insurance?

Professional indemnity insurance protects your business from screw-ups and problem clients.

Let’s say a client threatens legal action, claims loss of income or damages due to a service you provided. Even if you’re in the wrong, professional indemnity steps in to ensure the consequences to your business aren’t crippling.

A creative agency working on a project together. (Large preview)

It’s also important to distinguish what professional indemnity insurance isn’t. After all, business insurance is an umbrella term for different types of cover. One of those covers is public liability insurance — or general liability insurance as it’s known in the US.

Public liability insures your business against claims of:

physical injury to clients and members of the public
accidents on your work premises
damage to third-party property.

This is a popular cover for those who have clients visit their office or those who work from client premises. However, in this article, we’re focusing exclusively on professional indemnity.

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How Can Insurance Help Me If I’m A Designer Or Developer?

Business insurance isn’t often talked about in web circles. I think it’s because insurers have focused their products and user experience on traditional industries. A lot of the information out there isn’t relevant to those of us working in digital.

To add to that, people don’t equate working with a computer as being a danger or massive liability. Especially when you have all of your clients sign a contract. This can lull designers and developers into a false sense of security. A common objection I hear from web professionals when talking about insurance is:

I can’t cause any damage as a web designer. For anything that does go wrong, I have a clause in my contract that says I’m not liable.

Firstly, I have to debunk the myth of not needing to have insurance because you work with a contract. Contracts don’t alleviate you from liability. They’re useful for laying the foundation of what duties are expected of both parties, but insurance steps into action when those duties come into question.

With every scenario I’m sharing today, they all had the following in common:

A contract was signed by both parties.
They had years of experience in their profession.
They were professionally insured, but never expected to have to use their insurance.

Below are real stories of how professional indemnity insurance helped these designers and developers.

Scope Creep

A developer built a web platform to spec, but the client complained of missing functionality.

The developer agreed to build the perceived missing functionality for a further fee, but the client believed it should have been included in the initial build. Not only did the client refuse to pay the remaining invoice, but they threatened legal action if the developer didn’t cooperate.

Having professional indemnity insurance meant that the developer had a team of legal experts behind him. They helped the developer communicate with his client to avoid the problem escalating.

The developer’s professional indemnity policy also had a mitigation costs clause. This meant the insurer paid the amount owed to him by his client, which was thousands of pounds.

Project Delays

Designers and developers often work to tight deadlines. Missing deadlines can cause problems if the project has an important launch date.

A creative agency was hired to design a website, but the project started to unravel. Key members of the team left part way through the project and the pace of the work being completed slowed down.

While the website was delivered in time for launch, it was missing a lot of major features. The client said it wasn’t fit for purpose.

After wasting money on a marketing campaign for the launch, the client refused to pay the final invoice. They also incurred extra expenses from hiring new contractors to complete the website’s missing features.

The client threatened to involve solicitors if the agency pursued payment.

The unpaid invoice was settled by the insurer under the mitigation costs clause of their professional indemnity policy. The insurer also provided the agency with legal advisors to confirm with the client that the project is considered at an end.

Client Relationships Breaking Down

This is a common catalyst for professional indemnity claims. Even if we spot a few amber flags, we like to believe we can make our client relationships work and projects run smoothly. However scary it is, sometimes you have to burn bridges with a client.

A designer did this when working with a client they felt didn’t respect them. An ever-changing scope, long hours, and poor pay lead to a breakdown in the relationship. What had started off as a promising project was now a strained working relationship and source of stress. The designer decided to walk away from the project.

Unfortunately, that wasn’t the end of things. The client wanted to be reimbursed for the money they had already paid to the designer. They also wanted damages for the loss of income due to a delayed launch and compensation for hiring other contractors to complete the project.

A team of legal experts was arranged by the insurer to deal with the designer’s client. A settlement was agreed out of court, which was also covered by the insurer.

What Does A Professional Indemnity Policy Insure Against?

Professional indemnity insurance is a meaty policy, so it isn’t feasible to cover every scenario here. At its core, it’s designed to put your business back in the same financial position after a loss as it was in before a loss. As you can see from the stories above, a loss can be legal fees, client damages, compensation or even unpaid invoices. However, this has to stem from a client expressing dissatisfaction with your work.

While all professional indemnity policies differ, let’s look at some of the key features you can expect to see.

Defence Costs

If a client makes a claim against you, your professional indemnity policy will pay the defence costs. This isn’t just for situations that have escalated to court. Insurers want to solve problems before they get to that stage, so they’ll provide a team of legal experts to help negotiate terms with your client.

Intellectual Property Infringement

Web and graphic designers are vulnerable to arguments over copyright infringement, whereas developers could get into disputes over who owns the code. This clause covers claims against copyright infringement, trademarks, slogans, and even domain names.

Mitigation Costs

If you read the stories above, you’ll have seen mitigation costs mentioned where unpaid invoices were paid by the insurer. If a client is dissatisfied with your work, refuses to pay any or all your fees and threatens to bring a claim against you, professional indemnity may pay the amount owed to you by your client. This is only if the insurer believes it will avoid a claim for a greater amount.

Negligence

Negligence covers a broad spectrum, but think of this as a warranty for any mistakes you make that lead to an unhappy client.

Unintentional Breach Of Contract

Breach of contract can take many forms. It could be something as simple as failing to deliver a project on time or not meeting the client’s expectations. Any breach of contract may entitle the client to make a claim against you.

A web developer working on his laptop. (Large preview)

Some Practical Tips For Buying Insurance

The first question people ask when it comes to buying insurance is, “How much should I insure my business for?”. The level of cover will typically start at £100,000 and can go well into the millions. It can be a difficult question to answer, but there are factors that can help you arrive at a reasonable figure.

Client Contracts

If your client contract has an insurance clause, it’s usually for £1,000,000 of professional indemnity. This is the base level of cover a client would expect. It’s the most common level of cover I see businesses buy.

Types of Clients

What type of clients are you working with? Is it large corporations with in-house legal teams, or local small businesses? It’s not unwise to assume the larger companies pose a bigger threat, therefore should have a higher level of cover. You may also find that larger companies will have an insurance clause in their contract.

Type Of Work You Do

A developer building a payment platform will potentially face a bigger risk than somebody designing a website to showcase a restaurant’s menu. Does your work involve dealing with sensitive information or higher-cost products? Are businesses depending on your service to generate income for them?

If it feels like I’ve skirted around answering this, it’s because there isn’t a straightforward figure. A lot of insurers will simply tell you to buy what you’ve budgeted for. If in doubt, consider a base level of £1,000,000 and periodically evaluate your clients and type of work you do. Most insurers allow you to make a mid-term adjustment part way through your policy to increase your level of cover.

Other than the cost of insurance, there are a few other factors to be aware of when buying insurance.

Insuring More Than One Activity

The web is a multi-disciplinary industry. You should be looking for a policy that can cover your various activities. A web developer may also provide web hosting. A designer may also offer consulting services. If you fall outside of the typical box, you might find it useful talking to a broker or using a service like With Jack where your policy can be customized instead of using an online comparison site.

Insuring Your Work Worldwide

By default, professional indemnity policies in the UK exclude US jurisdiction. If you’re working with US clients under US contract law, look for an insurer that can lift the jurisdictional limit from your policy, so you’re insured worldwide. Just beware that it will increase your premium.

Your Policy Can Adapt To Your Needs

Insurance can be flexible. Don’t delay buying insurance because you’re thinking of switching from sole trader to Limited company down the line, or because you’re waiting to add a new service to your business. A good insurance company will allow you to adjust your policy, adapting it as your business changes and grows.

How Insurance Can Help You Build A Bulletproof Business

Whenever I see newcomers ask for advice on starting their business in the web industry, I see a lot of suggestions that look like this:

“Get an accountant immediately.”
“Build a network!”
“Have your clients sign a contract.”
“Monitor your cashflow!”

This is all great advice, of course, but rarely do I see anybody mentioning getting insured. Insurance should be a crucial part of any professional designer or developer’s toolbox.

Offering your professional services to clients comes with a degree of risk. It’s your responsibility to mitigate that risk. You have to be confident that — if something does go wrong — you can get back to work quickly. There can be issues with mistakes in your work, a relationship going sour or a client claiming they’re unhappy with your service. It doesn’t matter how good you are, these things happen!

This is why I’m sharing these stories — to highlight the importance of being insured. I want to get web professionals not just thinking about insurance, but understanding it. Insurance is something we don’t necessarily want to budget for or consider, yet as professionals, we have to. The stories above show how critical it can be.

So yes, work with a contract. Monitor your cash flow. Have an accountant manage your bookkeeping, but also get insured. There’s little point in building your business only for one problem client or mistake to take it away from you.

(ra, yk, il)