Nothing turns your world upside down like the fateful words “you have been served.” A lawsuit is every small business’s worst nightmare. Not only it means damage to your reputation, but also it also pulls you away from running the business to deal with a legal nightmare and lots of expenses. The cost for a Florida based civil litigation attorney averages at a little over $250 an hour, according to ProMatcher[1].
So how do you protect yourself and your business from the financial aftermath of a potential lawsuit?
In this blog post, we’ll explore the ins and outs of this policy – what does Professional Liability cover, who needs it and of course, how much it costs.
What is Professional Liability Insurance?
Before we discuss who needs this policy, we need to define what it is and what it covers.
According to US Small Business Administration, Florida is home to about 2.5 million businesses. A recent survey by Hanover Insurance Company found that at least 40% of small businesses do not have Professional Liability. This means that roughly 1,000,000 businesses in Florida are left unprotected. So what does a Professional Liability protect you from?
A Professional Liability insurance policy (also known as Errors and Omissions insurance) was designed to protect your business against third party lawsuits that claim professional error or negligence. No matter how good you are at what you do, mistakes happen. Sometimes they are not even your fault (a staff member making a mistake counts against your company too!).
A simple error can cause a chain of events that will drain your bank account and cause chaos.
What does Professional Liability Insurance cover?
As we discussed above a Professional Liability policy helps cover the financial consequences of a lawsuit. This lawsuit would be brought in by a third party alleging financial damages as a result from your professional services. A Professional Liability policy covers the legal defense costs, and payouts to the plaintiff, up to the policy limits.
The legal costs include attorney fees, and miscellaneous legal and court fees.
Few coverage particulars to pay attention to:
Shrinking Limits: As mentioned before, the policy pays for both legal defense costs and payouts, i.e., settlements to the aggrieved party up to the policy limit. It is important to remember that most Professional Liability policies are written with so-called “shrinking limits” provision. This provision means that any legal costs paid, reduce your primary limit. There is no sub-limit for defense (or unlimited defense costs) like the General Liability policy does. With that in mind, when you select your policy limit, you will need to take into the account the possible defense costs and the settlement and increasing your limits accordingly. The most notable exception to the shrinking limits provisions are policies designed for physicians or medical institutions (Medical Malpractice). Some carriers will sometimes endorse your policy to eliminate this provision, so it never hurts to ask.
Claims Made policy: Unlike the traditional General Liability policy, the Professional Liability policy is written on a claims-made basis. In this type of policy, for a claim to be accepted, it needs to be submitted while the policy is active unlike the traditional General Liability policy, that requires for the policy to be active when the claim occurred.
A retroactive date specifies how far back from the inception of the policy a loss can occur and be covered. If the claim is made during the policy period and occurred after the retroactive date (and is a covered cause of loss), it is likely to be covered.
Why is this important? When you have a claims-made policy, be very careful about letting it lapse or cancel for any reason. If the policy cancels you lose your original retroactive date, which means any claim that happened during that time will not be covered.
The defense is covered no matter the outcome: Good news! The Professional Liability policy will defend you, regardless if you are found guilty or not. All the defense costs will be covered according to policy provisions.
Additionally, the policy offers worldwide covers, and you will gain access to claim experts to help you navigate the situation.
Related: What does Professional Liability insurance cover?
What is not covered?
The most typical exclusions include illegal acts, malicious wrongdoing, and non-financial losses such as bodily injury and property damage.
The policy also specifically excludes any claims that do not allege professional wrongdoing.
Of course, to avoid duplication of coverages, the policy will also not cover claims covered by other policies such as workers compensation, employee dishonesty, etc.
Who needs Professional Liability Insurance?
If we asked you to name the professions that carry professional risk and would need Professional Liability insurance, you’d likely immediately think of doctors, lawyers and accountants. While Florida is home to many of these professionals they are not the only ones who need an Errors & Omissions policy.
Many business owners do not realize that they may need a Professional Policy as well.
Any business that provides professional advice or service or designs products or programs might need this type of policy.
The most common examples of those needing Professional Liability include but not limited to – doctors, accountants, architects, engineers, consultants, fitness trainers, and more.
Related: Who needs Professional Liability Insurance?
How much does Professional Liability Insurance cost
Unfortunately insurance policies are rarely a one-size-fits-all type of product. The cost of the policy is largely determined by many factors unique to you and your business. The average cost of a Professional Liability policy in Florida is around $775.
Some of the factors that affect your premium are:
– The size of the business in both annual gross sales and the number of staff members.
– The industry you are in and how risky the insurance company deems it to be
– Your claim history
– Risk management plan that contains strategies for claim prevention such as standardized procedures for client selection and communication, staff training policies. The risk management plan should also show whether or not you require a written contract for all the projects you undertake etc.
– Coverage limits and deductible
– The carrier will also evaluate the average value of your contracts as well as look at your largest contracts as they may present the most financial risk.
Conclusion
We know that adding another expense to your business’ budget is never something an owner wants to do. After all, watching expenses is important.
However, some expenses are well justified, and a Professional Liability policy is one of them. The bigger is your company, the bigger the risk that someone will one day want to take it all from you. In the long run, paying for this insurance will save you hundreds of thousands of dollars if the claim happens.
Unfortunately, nothing can guarantee that a disgruntled customer won’t sue you. But a Professional Liability insurance policy tailor-made for your company, can help your business stay afloat in the case of a claim and protect your finances.
[1] Attorneys.promatcher.com. (2019). Miami Attorneys Costs & Prices – ProMatcher Cost Report. [online] Available at: https://attorneys.promatcher.com/cost/miami-fl-attorneys-costs-prices.aspx [Accessed 13 Sep. 2019].
