The curse of professional indemnity insurance

By Michael Hessenthaler

Businessman at desk stressed

There's a rule practiced by PI agencies and their insurance company clients that sub-contract investigators must have professional indemnity insurance.

No insurance, no work. It’s the rule.

The sub-contractors of course being those that obtain their work from contractors - investigation agencies contracting to insurance companies and others.

For much longer now there’s the requirement imposed by clients that investigation agencies maintain appropriate insurance including cover for professional negligence. That’s perhaps reasonable, although I challenge anyone to name a single case of litigation for professional negligence against a private investigator in Australia. Ever.

What motivates investigation agencies to impose this financial burden on sub-contractors? And let’s face it, it’s a curse considering these policies cost about $1500 per year, judging by the emails I receive from mainly new investigators.

Who started this trend? Why?

Was it that the contractors are pressured by their clients that every one working for them has to have separate cover? I don’t think so.

What about the tea-lady? Or the office junior? Never know, the tea-lady might be…. And then, you know how it goes, the client might invoke the Chain of Events principle!

“Well your honour, you see my sub-contractor had coffee that was made with sour milk, he then went out to do an interview and instead of being able to concentrate on the witness incriminating himself, he was thinking about a toilet. As it were I was too busy to check his report…”

What a lot of nonsense!

I suggest that investigation agencies are taking a simplistic view of the situation and figure that given they can be sued, they have better find some way of passing the buck. A quick remedy. Or so they think!

Has anyone actually had legal advice on this? In most cases a sub-contractor working for an investigation agency receives most of his work, if not all, from that contractor. He or she “works for…. XYZ agency”. This is different from the contractor who obtains work from various clients.

At common law the sub-contractor is “an agent” who acted under instructions from the investigation agency, submitted his report to the investigation agency and was paid by the investigation agency as usual. An “agent” can do no wrong, alternatively any wrong done by the agent is a wrong done by the contractor/investigation agency. The contractor is responsible to ensure the sub-contractor does his job properly.

The contractor is liable to indemnify the agent (being the sub-contractor).

If the postman runs his motor cycle over your foot while you’re waiting for the mail, then it is not the postman that you will sue, but Australia Post. Because the postman is an agent for Australia Post.

According to the logic of the investigation agencies, they expect that the postman should be sued.

"Oh, but the sub-contractor investigator is different, he's actually an independent business and not an employee" - nonsense. Forcing them to essentially run fully independent companies is basically an attempt by the agencies to avoid taxation obligations, workers compensation costs, accounting and administration costs, etc. We all know that, don't we.

I say there’s Buckley’s that an insurance company would sue a sub-contractor investigator just because the contractor to whom they gave the work washed his hands of negligence and directed them to their sub-contractor.

So what’s the point making sub-contractors buy expensive professional indemnity insurance? From a legal perspective – none. It just makes insurance companies and brokers even richer.

Michael Hessenthaler


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