What is Professional Liability Insurance?
Professional liability insurance is a type of business insurance often referred to as Errors and Omissions or E&O Insurance. In some industries it’s called malpractice insurance. In some parts of the world, it’s referred to as Professional Indemnity Insurance. It covers professionals against:
- Alleged or actual negligence (work mistakes)
- Missed deadlines or undelivered services
- Breach of nondisclosure or copyright infringement
- Claims of libel or slander
- Data breaches
Professional liability insurance covers you if a client claims your services resulted in a financial loss due to the above circumstances. Professional liability coverage will cover your defense costs, such as hiring and paying attorney fees, court costs, and settlements.
Who Needs Professional Liability Insurance
If you provide a professional service or give professional advice or recommendations to clients, professional liability insurance is highly recommended. Some professions are required to obtain liability coverage, such as lawyers and doctors. Here are some other professions that should consider this type of policy:
- Accounting and Auditing
- Application Developers
- Computer Programmers
- Database Engineers
- Graphic Design
- Internet Services
- IT Consulting
- Professional Services
- Project Management
- Real Estate Agents
- Software Developers
- Web Design Services
- Web Developers
Why You Need Professional Liability Insurance
No business believes it will make mistakes and not have the customer’s best interest at hand. However, mistakes do happen. You need to remember, anyone can allege anything against you and your business. In fact, the suit may have little to do with you, but even being remotely involved opens you up to being sued. Unfortunately, sometimes in the litigious society we live in, you may be sued for something you didn’t do.
No matter if you or your business is negligent or not, it often takes months—even years—to reach a conclusion. Even if you and your business are exonerated and found not guilty, the defense costs can be enormous. If in fact there is an award against you that also can be a staggering amount. One major lawsuit can often cripple your business. Professional liability insurance will relieve this burden and allow you to continue operating your business during a lawsuit.
Professional Liability Coverage in Action
To help you better understand why a professional liability policy is necessary, here are some examples:
Example #1: You operate a consulting firm and offer professional advice as part of your service offerings. You make a recommendation to a small business that they put into practice incorrectly. Nonetheless, they find you at fault for the loss of income that was incurred and sue you. Even though you don't believe you are liable, professional liability insurance will help cover your defense costs.
Example #2: You are a web designer working on building a new website for a client. When you initially deliver the project, the client is happy with the results. However, shortly after the clients website is hacked and protected client information is compromised. You are sued for negligence and they claim you made an error. Professional liability insurance steps and covers the cost of defense, proposed settlement, and possibly cost of credit monitoring for those impacted by the breech.
Example #3: You're a real estate agent and helped a client find their dream house. However, the day the new homeowners moved in a pipe burst and flooding the home. They blame you for steering them in the wrong direction and sue you to cover the cost of repair. However, you have written in their contract that they waived a home inspection, and you aren't liable—which will be proven in court. However, professional liability insurance will help you cover the cost of defense.
Example #4: As an accountant, you frequently work with your customers to do book-keeping tasks and handle their financials. A client stumbles across errors you made that cost them money. Errors and omissions insurance steps in to cover the cost of the damage and any legal defense or court costs incurred rectifying your errors.
Professional Liability Insurance for the Medical Industry
For physicians, nurses, dentists, and chiropractors and others in a medical profession, professional liability insurance is typically referred to as malpractice insurance. Professionals who do medical testing and lab work also fall into this category.
Professional Liability Insurance for Consultants
Other professions like insurance, realtors, appraisers, and consultants may purchase another form of Professional Liability Insurance known as Errors and Omissions insurance (E&O).
The Technology Industry
Professional liability coverage is often written specifically for the industry in which it is being placed. For example, with the growth in the technology arena, technology companies, developers, website hosts, creators, and software development may all have coverage written specifically for their type of business. Additional coverage such as personal injury, breach of warranty, intellectual property, and other coverage types can be added to any business which provides a service or offers advice and opinion for greater protection.
General Liability Insurance Vs Professional Liability Insurance
We are often asked is, “What is the difference between general liability and professional liability insurance?".
When looking at business insurance, remember that the kinds of risks businesses face can be significant. So can the costs associated with these types of risks. Not only are you insuring the risk of your business, its property, and employees—but those who come into contact with your business and employees. A general liability insurance policy can cover these risks.
A general liability insurance policy typically insures against claims of bodily or personal injury or property damage sustained by a third party. General liability will cover the legal fees and costs associated with your legal defense, settlements, and property damages.
Professional liability insurance, covers negligence as it pertains to the professional services you provide. Generally—although not always—it is a claim involving financial damages, versus a claim of physical injury against your business. Typically, this type of coverage applies to professions where there is a professional code of conduct or standards which are used as a measure for evaluating how your services should be judged. Naturally, this is all subject to interpretation and is usually determined through the courts.
With either general or professional liability, one claim can be financially devastating to a business. Sometimes damages and injuries are real, and need to be addressed; other times, lawsuits can be baseless and frivolous. Regardless, you need to be prepared for either occurrence. Work with your licensed insurance professional to determine if a professional liability insurance policy is necessary for your business. Check out our complete article on 'General Liability vs. Professional Liability Insurance'.
How Much Does Professional Liability Insurance Cost?
Progressive lists their average monthly cost for professional liability insurance as $46 a month ($552 a year). Hiscox shows the average yearly price professional liability insurance for an IT consultant as $441 and on the higher end of the price range, for business consultants can cost $779. As you can see, cost varies widely per the industry that you’re in and includes other factors such as:
- Location of your business
- The number of employees
- How long you’ve been in business
- Claims history
- Credit score
Professional liability insurance costs also vary due to the deductible and coverage limits you choose. Typically these policies have coverage limits that are issued in million dollar increments and the deductibles range from $1,000–$25,000 per claim. A million dollar limit may sound like a lot, but these claims often start even higher.
Understanding “Claims Made” and “Retroactive Coverage”
A professional liability policy is normally sold on a claims made basis. Basically, it means that if a claim is brought against you or your business, the work must have been completed during the time period you had an active insurance policy. If you are seeking out a new policy, you can add retroactive coverage with some insurance companies. So if a claim is filed for work completed before the policy becomes active it can be covered.
If you cancel your insurance policy it is imperative to have requested and received an extended reporting period. Otherwise, if you cancelled the policy and later a claim was filed against your company, even though coverage was in place at the time of the event, the event is not covered. It is important to understand all the terms and definitions listed in your policy.
Professional Liability Insurance Quotes
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