Professional Liability Insurance

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Professional Liability insurance for California small businesses

California is home to over 4.1 million small businesses, according to the latest stats provided by the U.S. Small Business Administration Office of Advocacy. These small businesses are a vital part of the Golden State’s economy, making up 99.8% of all businesses and adding over 214,500 net jobs to the state in 2019.

The top five industries for California small businesses are:

  1. Accommodation and Food Services
  2. Health Care and Social Assistance
  3. Professional, Scientific, and Technical Services
  4. Construction
  5. Retail

Regardless of the industry you work in, you will likely want to protect your small business from common risks. Professional Liability insurance is one way to do this. A policy can help protect a wide variety of businesses and occupations from common claims that might otherwise be financially devastating to your operations.

What is Professional Liability Insurance?

Small businesses that provide professional services or give advice to clients should consider purchasing Professional Liability insurance in California.

Professional Liability insurance (also known as Errors and Omissions or E&O insurance) is an essential type of policy that protects you and your company in case of a lawsuit due to alleged professional wrongdoing. It protects your business against claims of negligence, misrepresentation, or mistake. Typically, the allegation is that your services, products, or employees caused some form of financial damage to your clients.

For example, imagine you offered a professional service that did not suit your customer. They suffered personal and financial damages after using your offering, and as a result, they initiate a lawsuit against your company. In such a situation, a Professional Liability insurance policy can help you meet the expenses incurred while defending your company.

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What does Professional Liability Insurance cover?

Professional Liability insurance in California protects you against claims of:

  • Error or Mistake
  • Omission
  • Missed deadlines
  • Undelivered services
  • Negligence
  • Breach of contract

If a claim or lawsuit is brought against your business alleging any of the above, your Professional Liability insurance policy will pay all legal expenses incurred while defending your company. This includes lawyers’ fees, documentation and underwriting charges, administrative costs, settlements, and judgements.

Importantly, Professional Liability insurance in California helps protect you against both actual and alleged losses resulting from your work. Lawsuits can be expensive, regardless of whether they have merit or not. A Professional Liability policy helps protect your business’ finances by paying relevant legal fees. Without a policy, you would be responsible for these costs, which could potentially lead to bankruptcy or business closure. In a worst-case scenario, you might also need to dip into your personal savings to pay your legal expenses.

Professional Liability claim example

Here’s an example of a Professional Liability insurance policy in action:

One of your designs has a flaw, making it necessary for the builder to tear down his work and start over. Your client sues you for the cost of new materials and labor to rebuild the part of the project that is damaged by your flaw. Professional Liability insurance will cover this claim up to your limits of liability.

Professional Liability insurance can help shield your small business against a wide range of claims that professional service providers commonly face.

What is not covered?

Professional Liability insurance provides important protections for many small businesses. However, it does not shield you against every risk your business may face. Other forms of insurance coverage might be necessary to fully protect your enterprise.

Small business owners in California might consider these and other types of coverage to meet their business insurance needs:

  • General Liability – Also referred to as Commercial General Liability (CGL) or “slip and fall coverage”, this insurance can protect your business against bodily injury or property damage lawsuits from outside parties.
  • Business Owner’s Policy – A Business Owner’s Policy (BOP) is a combination of policies, combining covers such as General Liability insurance and business personal property coverage, to help protect small businesses from costly interruptions to service.
  • Workers’ CompensationWorkers’ Compensation insurance (also referred to as Workers’ Comp or Workman’s Comp) protects you against medical expenses and lawsuits that can arise from employee workplace injuries and illnesses. It could also pay lost wages as a result of the work injuries that an employee sustains.

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Who needs Professional Liability Insurance?

Many types of professionals and businesses may benefit from having Professional Liability insurance in California. These include ventures that engage in giving advice based on expertise or specialty knowledge, making educated recommendations, designing solutions, or representing the needs of others on their behalf.

Professional Liability insurance can safeguard your professional reputation, profitability, and business assets from the potentially astronomical expenses of litigation (whether justified or not).

Professions that may need Professional Liability insurance are:

Architects Notary Publics 
Consultants Personal Trainers
Engineers  Pilates Instructors 
Home Care Providers and Businesses Yoga Instructors 

As you can see, the types of professions that typically buy Professional Liability insurance is varied. If you are unsure if this form of coverage is right for you and your business, it may help to think about the nature of your job.

Individuals or businesses that engage in the following activities should consider having Professional Liability coverage:

  • Regularly give advice or recommendations to clients
  • Design products or custom solutions for clients and customers
  • Represent a client’s interests on their behalf
  • Provide other professional services to clients and customers
  • Employ others who do any of the above

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Are businesses required to have Professional Liability insurance in California?

Small businesses in California are not required by law to have Professional Liability insurance. However, professionals working in some industries may be required to have a policy by other groups.

Professional associations sometimes require their members to have Professional Liability insurance. Maintaining minimum levels of coverage may be a necessary step to obtaining and renewing a professional license or working in the industry. Your professional association’s website should have information about their insurance requirements, if any.

Additionally, clients may also require you to have Professional Liability insurance to work with them. This condition may be written into business contracts, and you could be asked to provide proof of your insurance before commencing work for the client.

Even if you are not required to have Professional Liability insurance, it may still be wise to have a policy. Customers may expect the businesses or professionals they hire to have insurance coverage. A policy communicates your professionalism and shows clients you value your business reputation and are ready to defend it, if necessary.

How much does Professional Liability Insurance cost in California?

Professional Liability insurance costs can vary widely. This is because premiums (how much you will regularly pay for a policy) are affected by different factors that together create a unique profile of your business.

The cost of Professional Liability insurance is heavily influenced by the types of occupation it provides cover for. Generally, the riskier the occupation, the higher the cost.

Other key factors that play a part in determining the cost of Professional Liability insurance are:

  • Your business turnover and size – Larger contracts typically mean taking on more risk.
  • The amount of insurance coverage you require – The more coverage you need, the more you can expect to pay.
  • The individuals being covered – Are they qualified for the job they are performing, and do they have a previous history of claims?
  • Your individual claims history – A history of making similar claims in the past may increase the amount you pay for a policy.

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