Professional Liability (Negligence)

Tax relief lawyers at Pavuk Legal

Often people involved in providing professional services or advice on the basis of an established discipline seek legal advice to ascertain what constitutes professional negligence and whether they will be held liable for their actions.

These people could be architects, professional engineers, IT consultants, advertising professionals, financial advisors, professional coaches, a translator and/or interpreter and even lawyers.

In Australia, professionals have a legal duty to perform based on a reasonable standard that is expected from their profession.

Accordingly, if a professional is engaged as an independent contractor and his or her performance fails the duty of care and consequently causes loss or damage, he or she may be held liable personally to pay compensation.

What follows is an overview of professional liability, types of insurance, and an analysis of the difference between an employee and independent contractor.

Definition of Professional Liability (Professional Negligence)

Generally professional persons are liable for any act or omission that is in breach of their duty of care that they owe accordingly to the regulations of their skills and the legislation. If liable, the professionals are to compensate the plaintiff for damages caused by negligence.

Such damages could range from physical injuries such as severe spinal damages caused to a person who fell over a bridge railing designed by an architect which was proved to be too low. It could also be pure economic loss such as monies lost on the basis of a client who relied on a negligent advice of a financial advisor.

Insurance and Professional Liability

Professional Indemnity Insurance

This type of insurance is usually designed to protect a company or a business from acts or omissions associated with the services provided to the clients.

Generally, professional indemnity insurance may cover legal liabilities of the company or the business in claims brought by the clients for alleged breach of the professional duty.

Based on the terms of the policy, this type of insurance may also cover the legal fees and expenses associated with defending any alleged claims brought by the clients.

Public Liability Insurance

This type of insurance covers legal liability of accidental, unexpected and unintended events which may cause property or physical damages to third parties.

The liability covered under this insurance may be caused by negligence or even interference with the enjoyment of a property.

Run-Off Insurance

This is a type of insurance which is useful in circumstances that the professional indemnity insurance has lapsed or ceased to exist. In effect, a run-off insurance will continue to cover the professional for past acts and omissions which may have been caused by negligence.

The run-off insurance would be particularly beneficial to those types of professionals, such as architects and structural engineers who may be liable for claims brought against them long after they have retired or in circumstances that their employed company has been made insolvent or ceased to exist.

Employee v Independent Contractor

Many professionals who work as employees are under the impression that they will not have the same liability towards their clients as independent contractors on the basis that they are covered by their employing company’s insurance.

It is true that professionals that do their work, so long as they do not expose themselves to a liability personally, they will be covered under the employer’s protection.

Occasionally, an employer could cover liabilities caused by their employee’s negligence or breach of their duty of care. In these cases, the employer will be required to notify its insurer immediately and try to mitigate the damages through the insurance plan.

However, in Australia, all professionals have a duty of care individually to their clients both at common law and under legislation. Accordingly if the duty of care is not met, the professional could be personally liable for any losses or damages caused.

It is no longer the case that if the retainer is with the company where the employee is working, then the professional employee would be solely liable but not in Tort. In Hedley Byrne & CO Ltd v Heller Partners Ltd [1964] AC 465, it was held that professionals have a duty to take reasonable care to avoid pure economic loss.

In the High Court case of Houghton v Arms  [2006] HCA, the question was whether a professional employee could be personally sued in circumstances that the employer is a limited corporation with insufficient funds to pay for damages award or otherwise the employer is an insolvent corporation. The High Court held that the employee could be personally liable for false or misleading conduct.

In that case the employees provided the client a business plan on the employer’s letterhead which ultimately caused damages to the client. The employees argued that they provided their services not in the course of trade or commerce but in the court of their employment. The High Court decided that whether or not the employer company should be held liable, was immaterial to the liability of the employees.


Hence, the professional employee is entitled to an indemnity from the employer, however there are several circumstances where professional will be personally liable for damages to the client, e.g. where the business of the employer is sold or is insolvent, when the professional is being investigated for a disciplinary action or when the professional employee is sued personally for defamation or for being dishonest.

It is therefore recommended that the professional employee seeks legal advice when entering into an employment contract with the employer to ascertain the contract protects the individual properly in case of a claim brought by the clients or third parties.

Our Services

Medical Negligence Lawyers Sydney at Pavuk Legal can provide you with legal advice if you are a professional who has had a professional negligence claim made against you, including circumstances where insurance cover has been denied.

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