Professional indemnity insurance is a safety net: if the vendor makes a mistake (like miscalculating your accounts or losing data due to negligence), their insurance company pays compensation up to a set limit. This clause specifies how much coverage they carry—for example, £1 million or £5 million. It matters because if the vendor causes you £2 million in damages but only carries £500,000 in insurance, you can only recover £500,000. This is medium-risk because the limit might be too low for your needs.
Check what the indemnity limit is and compare it to the maximum damage you could suffer if they fail—for critical services, the limit should be at least equal to your annual contract value. Ask for proof they actually hold the insurance (request a certificate), and make sure the policy covers the specific services they're providing to you. ---
Frequently Asked Questions
What does this clause mean in simple terms?
Professional indemnity insurance is a safety net: if the vendor makes a mistake (like miscalculating your accounts or losing data due to negligence), their insurance company pays compensation up to a set limit.
Why should I care about this clause?
This clause specifies how much coverage they carry—for example, £1 million or £5 million.
What are my options?
It matters because if the vendor causes you £2 million in damages but only carries £500,000 in insurance, you can only recover £500,000.
How does this affect small businesses?
This is medium-risk because the limit might be too low for your needs.