Professional Indemnity

Professional indemnity insurance (PI) — sometimes called errors and omissions insurance or professional liability cover — is the protection that NZ motor trade businesses need when their professional work is challenged. It covers the legal costs of defending a claim and any damages awarded against you, when a customer alleges that your advice, inspection, or workmanship has caused them a financial loss.

## Why Motor Traders Need Professional Indemnity

Most NZ business owners associate professional indemnity with accountants, lawyers or engineers. But the reality is that motor trade businesses provide professional services every time they:

- Carry out a mechanical repair and recommend it as roadworthy - Issue a Warrant of Fitness certificate - Diagnose an electronic fault and return a vehicle to a customer - Advise a customer on which tyres are appropriate for their vehicle - Represent a vehicle's condition, history, or value at point of sale

Each of these activities carries professional liability. Under the Consumer Guarantees Act 2003, services must be carried out with reasonable care and skill. When this standard is not met, customers have the right to seek a remedy — and if they do, your professional indemnity policy is what stands between you and a potentially devastating out-of-pocket cost.

## The Motor Vehicle Disputes Tribunal

New Zealand's Motor Vehicle Disputes Tribunal (MVDT) is a fast, accessible forum specifically for disputes involving motor vehicles. Cases are heard without formal legal representation in most instances — but that does not mean they are inexpensive. Even an unsuccessful MVDT case can cost the respondent several thousand dollars in time, preparation and expert reports. A successful MVDT award against a workshop can run from $2,000 for a minor service dispute to $50,000+ for a major workmanship or vehicle quality claim.

Professional indemnity covers both the legal defence costs of responding to a MVDT claim and any award made against you.

## WoF Inspections: A Unique NZ Liability

New Zealand's Warrant of Fitness (WoF) regime creates a unique professional liability exposure that does not exist in most other jurisdictions. WoF-authorised inspection stations and qualified inspectors take on a certification responsibility — confirming that a vehicle meets the minimum safety standards required for road use.

If a vehicle passes a WoF inspection and is subsequently involved in an accident where a safety defect is identified, the certifying workshop can face a professional indemnity claim — and potentially a regulatory investigation by NZTA. This is a claims-made exposure: the WoF may have been issued months or years before the incident, but the claim is made against the inspection station when the defect is discovered.

## Claims-Made vs. Occurrence Basis

Professional indemnity in NZ is almost always written on a claims-made basis: the policy that is active when the claim is made (not when the work was done) responds. This means:

1. You must maintain PI cover continuously — a gap in cover creates uninsured exposure for prior work 2. When you cease trading, you need run-off cover for claims that may arise from past work 3. When you switch insurers, ensure your new policy's retroactive date matches or predates your prior policy's inception

Your broker can help you manage retroactive dates and ensure no coverage gap exists between policies.

## How Much Cover Do NZ Motor Traders Need?

Common limits in the NZ motor trade: - Small workshops: $500,000–$1,000,000 - General repair garages and service centres: $1,000,000–$2,000,000 - WoF-authorised stations: $1,000,000–$2,000,000 - Dealers with sales representation liability: $1,000,000–$2,000,000

The appropriate limit depends on the value of work you undertake and the maximum value of claims that could arise from your typical jobs.