Professional Liability Insurance: The Basics
If you’re just starting out in a new career or building a company for the first time, you probably have a General Liability (GL) insurance policy or Business Owner's Policy (BOP). You may have also heard about a distinct kind of coverage called Professional Liability (PL) insurance, which is often considered a must-have for both individual professionals and businesses.
What is Professional Liability insurance?
Professional Liability insurance goes by different names in various professional circles, including Professional Indemnity, Malpractice, or Errors and Omissions (E&O). They all refer to insurance that keeps you and your company protected from civil lawsuits for negligence, common mistakes, misrepresentation claims, and more.
If you already have General Liability insurance or a Business Owner's Policy, you may think you don’t need Professional Liability coverage. However, many liability policies only cover bodily, personal injury or property damage, so a surprising number of claims don’t fall under the GL umbrella.
Who needs Professional Liability insurance?
Professional Liability Insurance is a must for every business that offers professional services, such as lawyers, accountants, consultants, investment advisors, real estate agents, architects, medical experts, engineers, and others.
These professions require specialized education or training, and their practice must meet certain state, industry, contract or client standards. Oftentimes the professional is licensed for their trade. Compromised standards or not living up to the standard of care can lead to expensive trials and put your personal assets at risk.
Ask yourself: What is the material impact my services have on my clients, and what if I make a mistake or upset a client? Are your clients ever at risk for monetary damages if you make a mistake or give bad advice? Is there a lot of variation in your services from person to person? Do you ever make suggestions or claims that could be construed incorrectly?
The unfortunate reality in America is that this is a litigious environment. If your clients have financial misfortunes or are upset with your work, it's very easy for them to turn around and sue you, the professional. Oftentimes the work product is pristine, but you still find yourself in the crosshairs of a lawsuit.
When and why do you need Professional Liability insurance?
Nobody expects to make a mistake, but they happen. In business, it’s smart to expect mistakes AND protect yourself from professional liability lawsuits that can result. Whether a lawsuit is grounded or not, liability damages can cost you money, time, energy, and perhaps most importantly — reputation.
Negligence and misrepresentation claims that fall under Professional Liability insurance are broad and can arise for all sorts of reasons. Any situation that involves an individual or corporation breaching its duty and causing injury and/or monetary loss can be considered negligence.
Sometimes it can be as simple as miscommunicated results, a missed deadline or error in paperwork. Malpractice allegations can also arise from changes in your clients that are out of your control. In fact, even if you’ve done the work to spec without mistakes, you can still be sued if your work doesn't meet a client's personal standards or expectations (don’t forget — expectations are rising, and so is litigation).
For example, lawyers and accountants are challenged with providing counsel, opinions, and management to clients in sensitive positions. Even if their legal or financial counsel is sound — and given with the client’s best interests in mind — they may face claims of misrepresentation, poor counsel, or negligence.
A client might say some advice led them to a bad business decision, or caused them to invest poorly. These claims are often easy for a plaintiff’s attorney to craft, and may be hard to escape. Regardless of the claim’s validity, it will require legal representation and take a great deal of precious time and financial resources to resolve.
Most cases are often dismissed without finding, which shows how often plaintiff’s attorneys will just try to attack the professional. It is of little consequence to allege wrongdoing against you, but it can have a profound effect on your business. Having Professional Liability insurance provides you with a defense so that you do not have to be concerned over such allegations.
Professional Liability insurance cost
The cost for Professional Liability Insurance varies based on the services provided, size of the company, and your clientele. There is no standard cost structure for Professional Liability insurance, but it is often more affordable than people expect.
If you want to be fully covered without overpaying, your coverage needs to be customized to your business risk profile, not just your business niche. For example, two lawyers have vastly different coverage needs if they are representing a class action in California versus a divorce case in North Dakota.
Business insurance in general is a complex situation with a lot of space for financial and strategic mistakes. If you are not certain what type of Professional Business Liability insurance you should buy (and a lot of people only think they know) give us a call or sign up here. Let our smart, data-driven platform guide you through the process, with no strings attached.
Everything is automated and the registration process takes only a few minutes. Whatever you choose, we make sure your next Professional Liability insurance experience is easy, secure, and cost-effective.
Summarizing Professional Liability insurance
If you ever find yourself in a situation where your expertise, quality of service, or execution is called into question, Professional Liability insurance has your back. It can also protect you in the event of frivolous allegations when your work product was excellent.
If you’re still not sure whether you need it, please reach out to us. Unexpected claims can arise at any time from dissatisfied clients, and you don’t want to find out at the last minute that your General Liability insurance policy doesn’t cover you.
P.S. Check out our blog to learn even more.