What does Professional Liability insurance cover?
Also known as Errors and Omissions insurance, Professional Liability insurance is designed to protect your business against claims for negligence, misrepresentation or mistakes. As a professional, you are exposed to the potential risk of clients making allegations for financial damages due to the services or products your business provides.
For certain kinds of professional practices like medical and legal, Professional Liability insurance is required by law. It is important to remember that this type of insurance is not part of a General Liability insurance policy.
In the event that a dissatisfied client sues you due to an error you or an employee has made, you can call on your professional liability insurance to assist you with the costs associated with recruiting an attorney and settling any cases.
Professional liability insurance is designed to cover service providers against claims of alleged or actual negligence that emerge during the course of delivering professional services; for instance, making a minor error that has significant consequences, offering incorrect advice, or failing to deliver a service. Professional liability insurance coverage covers defense costs and damages costs to the level outlined in the policy, irrespective of whether an error was made.
For instance, let’s say you’re an accountant and your client claims you filed incorrect taxes, which led to a loss of money. In such a situation, you can draw from your professional liability insurance to assist you to cover legal and settlement costs.
Professional liability insurance typically covers the following:
Errors and oversights
Sometimes a basic error can lead to the loss of a lot of money. If a client sues due to a mistake made by your business, you can use your professional liability insurance to pay for legal defense costs.
If you have promised that you will deliver a certain service in a certain way and fail to do so, your client may sue—especially if the failure to live up to expectations has a negative impact on your client’s business.
If you are accused of negligence—for instance, on the grounds your work did not meet industry standards—you may be hit with a professional liability lawsuit.
If a service professional fails to meet a deadline, the client may encounter serious issues and expenses. Professional liability insurance can protect you if a client sues you for failing to deliver milestones on time.
What does professional liability insurance not cover?
Customer injuries or property damage
In the event a customer sustains an injury while visiting your premises or you damage something on the client’s site, you will need general liability insurance to assist you to contribute to any medical expenses or repairs. General liability insurance will also cover you for any legal expenses if the customer decides to prosecute.
In the event workers experience work-related injuries or fall ill, their medical expenses will be covered by workers’ compensation insurance.
Damage to business property
Any items that are stolen, damaged, lost or destroyed are covered by the business owner’s policy (BOP).
Employee discrimination lawsuits
Employment practices liability insurance (EPLI) is designed to cover any legal costs associated with wrongful termination, harassment, or discrimination.
Vehicles used by a business
It is a legal requirement for business-owned vehicles to be covered by commercial auto insurance. As such, you should ensure that any leased or personal vehicles that are used by a business are covered by hired and non-owned automobile insurance.
Contingent bodily injury
Contingent bodily injuries are any injuries that a customer or client sustains that are indirectly linked to your professional service. To cover contingent bodily injuries, you will need product liability insurance.
How Professional Liability Coverage differs from General Liability?
Both general liability insurance and professional liability insurance are designed to protect your business against the liabilities small businesses may encounter; however, they are designed to address different types of lawsuits. Depending on the risks associated with your business or service, you may need to purchase one or both policies.
What is general liability insurance?
General liability insurance covers the basic lawsuits that all businesses can encounter at any time. Essentially, you will need it if a third party (someone who doesn’t work for your business) decides to sue you for one of the following reasons:
– They incurred bodily injuries while on your commercial premises
– You caused some form of damage to their property
– Your advertising strategies have caused them some form of injury (copyright infringement, misappropriation, slander, libel).
What does general liability insurance pay for?
General liability insurance pays for any legal expenses you encounter when responding to a third-party lawsuit. Examples of costs could include court costs, attorney fees, judgements or settlements. Any small business owner in any organization or field can encounter a general liability claim. It is for this reason that this policy should form the very foundation of your protection strategy.
Professional liability and general liability are associated with different risk exposures. General liability insurance will assist you with any lawsuits that emerge due to a visitor having an accident on your property, while professional liability insurance will assist you with any lawsuits that emerge due to accusations of professional mistakes.
Professional liability covers financial damages, while general liability covers physical damages.
In some cases, a general liability policy may incorporate some form of products-completed liability insurance that is designed to cover professionals who own retail, construction, manufacturing, and other service businesses. This is designed to protect you from any lawsuits related to completed works that cause some form of physical harm to another party. While this may appear to be the domain of professional liability, the yardstick lies in the term physical damage. Professional liability insurance is limited to financial damage.
Which policy makes sense for your business?
In most cases, you will need both professional liability and general liability insurance to ensure you are protected against both physical damage and financial damage. This is most certainly the case if you operate in the professional services industry or rent/own commercial property that is accessible to the public.
It can be possible in some cases to operate without either policy in place; however, it is a very risky route to take and not advisable. Someone could have an accident in your building or claim you did not fulfil the claims of a contract at any time.
Who needs professional liability insurance?
Professional liability insurance, which is also referred to as professional indemnity or errors and omissions coverage, covers small business owners or professionals who leverage their knowledge to make a living. Just some of the specialists who should consider purchasing professional liability insurance are as follows:
- Architects, designers, and engineers
- Real estate brokers
- Financial consultants
- Accountants and bookkeepers
- IT professionals and programmers
- Marketing and advertising professionals
Why should you have Professional Liability Insurance?
Commercial General Liability (CGL) insurance offers sufficient protection for the majority of small businesses. The clauses contained with CGL policies can be adjusted in line with your requirements; however, even the most basic policy can protect you against liability for things such as customers slipping on a wet floor or getting ill after eating your food. However, it is important to note that CGL does not protect customers against rendering or failing to render professional services. For that, you will need professional liability insurance.
What actions could result in a Professional Liability claim?
Below are some examples of different professions and the potential type of claims that could be covered by a Professional Liability insurance policy.
Example 1- An IT engineer builds a faulty website for a client that crashes just before they launch a new product. The client sues the IT engineer for negligence and loss of income.
Example 2- The expertise of an architect has been hired to build a new building for a client. The architect stamps or signs off on plans that have an error in calculation.
What does a professional liability insurance cover? Even if you are not found liable, a claim can have a devastating impact on your business’ finances, your time and your reputation. This is where Professional Liability insurance becomes vital to safeguarding your business financially for the long run.
If your business is sued, Professional Liability insurance covers your legal expenses, including the required legal representation and damages to the victim if awarded. Even if you not found liable, your policy will cover the related legal costs to defend your lawsuit.
Professional Liability insurance will typically cover:
- Attorney fees and other legal expenses
- Associated settlement costs and expenses
- Costs and expenses related to a judgment
Professional Liability insurance does not include cover for criminal prosecution and there may be liabilities under civil laws that may not be covered in a policy. To understand the exact inclusions and exclusions of your coverage refer to your policy’s wording.
*As with any insurance, cover will be subject to the terms, conditions and exclusions contained in the policy wording. The information contained on this web page is general only and should not be relied upon as advice.