According to the U.S. Small Business Administration, there are 4 million small businesses in California which equates to 99.8% of all businesses within the Golden State. California organizations that offer professional advice or perform a specialized service should consider purchasing Professional Liability insurance. This type of coverage, also known as Errors & Omissions (E&O), protects businesses against allegations of mistakes, negligence, or misrepresentation. The most common claim against a business is that an employee, product, or service caused harm to their client, usually financial harm.
For example, a customer may allege your employee provided misleading advice which resulted in the client experiencing personal or professional damages. As a result, your customer may initiate a liability lawsuit against your company as a way of mitigating their losses. In this scenario, your Professional Liability Insurance will help absorb the expenses related to defending your organization.
What does Professional Liability Insurance cover?
The following are general circumstances for which your Professional Liability insurance will help your California business.
- If your business provided a client with subpar or incomplete work.
- If you or your employees provide a customer with inaccurate information or poor advice.
- If your customer is claiming your business breached the contract in some manner.
A liability policy will safeguard your company when it’s accused of various types of wrongdoing, even if the allegation is false. A benefit to having California Professional Liability coverage is the legal defense costs that are included. Expenses associated with defending your business against a professional liability claim are covered under the professional liability plan.
Below is a detailed breakdown of the financial resources your Professional Liability Insurance will provide, including:
- Defense attorney fees
- Expert witness and private investigator costs
- Court administrative costs
- Settlements (money paid to your client to drop the lawsuit)
- Judgements (money the judge or jury orders you to pay to the client)
- Documentation charges
- Miscellaneous administrative costs
By relying on your Professional Liability policy to pay for the above items, you’ll be able to avoid dipping into business revenue. This will help keep operations running smoothly and alleviate any undue financial burden while defending your business in court.
Of course, there are exclusions within every California Professional Liability Insurance policy such as the following situations that are not covered:
- Illegal acts
- Intentional malpractice
- Property damage
- Known claims and circumstances
- Fraud and dishonesty
- Bodily injuries
- Deliberate wrongful acts
- Employment discrimination
- False advertising
- Violation of laws or regulations
Recommended reading: What does Professional Liability insurance cover?
Who needs Professional Liability Insurance?
Many different vocations can benefit from the support of Professional Liability Insurance to guard their financial resources and protect their reputations from the risk of a liability claim. Furthermore, California businesses in a wide variety of industries purchase Professional Liability coverage because they offer specialized services and advice that could someday lead to a liability lawsuit. Consultants, accountants, fitness instructors, and dozens of other California business owners keep Professional Liability insurance in their portfolio just in case they are involved in a liability case at some point. Professional Liability plans help owners and CEOs safeguard their business reputation, business assets, and long-term profitability from the costs of potential litigation.
Related: Who needs Professional Liability insurance?
How much does Professional Liability Insurance cost in California?
Professional Liability Insurance pricing is unique to each business and is calculated based on several different factors. On average, California businesses pay an annual premium of $773 for Professional Liability Insurance.
In general terms, the riskier the occupation then the higher the Professional Liability insurance pricing. Other important aspects of an organization are considered when determining the final premium amount.
A few of the key factors that are taken into consideration when establishing a Professional Liability policy are:
- The liability limits selected. Bottom line: the higher the protection purchased ($2M versus $1M) then the more you’ll pay in premium.
- Annual revenue: Large, complicated, big-budget projects increase your risk of being sued and the insurance carrier will certainly take that into consideration when setting premium amounts.
- Annual payroll, staff size, turnover rate, employee licensing and experience
- Type of occupation: some professions are simply riskier than others and the insurance costs reflect that difference.
- Credit and legal history
- Previous claims history
What Other Ways Can Professional Liability Insurance Benefit My Business?
Professional Liability Insurance will also offer less obvious benefits to your business such as:
- Professional Liability May Be Required – For example, many professionals working within the healthcare and fitness industry are required by state and/or professional organizations to secure a Professional Liability policy before working with the public.
- Certificates of Insurance (COI) – A COI for Professional Liability Insurance is frequently requested by business partners, loan officers, landlords, and other business contacts. Sometimes not having Professional Liability insurance in place means you could miss out on a great opportunity.
- Possible Tax Benefits – Check with your business accountant to confirm if there are any tax benefits to buying a Professional Liability Insurance policy. You may find that all or even a portion of the premium is a deductible business expense.
California Professional Liability Insurance Makes Sense
After learning more about how Professional Liability Insurance can benefit your business, it may be evident why Professional Liability coverage is a great investment for your company’s long-term growth. Up until this point, you may have been fortunate in not encountering any dissatisfied clients. However, as you expand your customer base and begin to take on even bigger projects, you may find yourself in a civil lawsuit for which California Professional Liability Insurance would be beneficial.
