Professional Liability Insurance

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Professional Liability Insurance is coverage for individuals and businesses who charge a fee for a service. Providing your expertise to the market can result in significant costs to your customers when a mistake is made, and without this insurance those costs could put you out of business.

This type of insurance can be named many different things depending on the industry you are a part of. It is called Medical Malpractice for doctors and nurses, Errors & Omissions for real estate agents and appraisers, and Technology Errors & Omissions for software programmers. For many other services a standard Miscellaneous Professional Liability policy can provide the right coverage. Given the many ways in which people can become dissatisfied with advice or services, investing in extra protection can help you rest easy knowing a remedy is available.

Read on to see if Professional Liability Insurance is right for your business.

What Professional Liability Insurance Is All About:

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What Is Professional Liability Insurance Coverage?

Professional Liability Insurance is a coverage for claims of a loss made against you and your business which were caused by your provision of a professional service. If a client or customer determines that advice, products or services have proven less than satisfactory, they may seek a form of remittance. Remittance can mean that an individual or group will file a claim against your business, seeking to recover costs alongside other forms of loss.

Depending on the industry your business operates within, the types of Professional Liability protections you need will vary. For example, different products often need to be recalled due to them not working, having been contaminated or having the ability to cause bodily injury to human beings. Whenever any of these unwanted outcomes occur, a business owner will want to ensure they can find a suitable course of action to remedy the damage.

You may have also heard it referred to as E&O or Malpractice insurance. The policy will pay for:

  • Errors and omissions - because you are still human and can make mistakes, but these mistakes can impact the client that you are providing the professional services to.
  • Breaches - because even unforeseen things can happen that can cause you or your business to be unable to fulfill a contract.
  • Defense costs - once again, you will be prepared to defend yourself in court if you have purchased a Professional Liability insurance policy.

What Does Professional Liability Insurance Cover?

Getting into details...

Architects/Engineers Liability

Protection for architecture and engineering firms against any claims of negligence, omission or error on behalf of the business. Example: If an engineer makes a mistake which costs a client money, the firm will be protected against the costs associated with that loss.

Data Compromise Liability

Protection for businesses which hold sensitive data against any claims of negligence, omission or error in security. Example: If a business offering secure storage for data has data compromised, they will be protected against financial risk and other liabilities.

Banking & Broker Liability

Protection for banking institutions and brokers against any claims of negligence, omission or error on behalf of the business. Example: If an banker makes a mistake which costs a client money, the institution will be protected against the costs associated with that loss.

Technology Liability

Protection for those working in the technology industry against any claims of negligence, omission or error on behalf of the business. Example: If a web developer makes a mistake which costs a client money, the agency will be protected against the costs associated with that loss.

Media & Communication

Protection for those working in the media and communications industry against any claims of negligence, omission or error on behalf of the business. Example: If a social media coordinator makes a mistake which costs a client money, the agency will be protected against the costs associated with that loss.

Who Is Covered by Professional Liability Insurance?

  • You and Your Business

  • Your Employees

Do I Need Professional Liability Insurance?

The existence of risk is inherent in owning a business and managing it is an important decision. If you have considered some of the potential liabilities you may suffer in the event that your professional advice, services or products are not satisfactory, you likely have a good understanding of the risks for your business. The first line of coverage an individual searching for insurance is most likely to encounter is General Liability. While this is a useful insurance policy for nearly any business, it does not transfer the the highest risk exposure a professional services corporation carries. General Liability policies specify coverage for claims of bodily injury and property damage, but nearly always exclude coverage for claims arising out of a professional service. This is the role of a Professional Liability policy.

This insurance will come in handy if you:

  • Want to protect yourself and your business against negligence claims
  • Want to protect yourself and your business against financial risk
  • Want to ensure your business assets are protected for now and for the future
  • Want coverage for anything that can go wrong with providing professional advice, services or products to customers or clients

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What Are the "Limits" on Professional Liability Insurance?

The standard limit for Professional Liability follows the market base of $1,000,000 per claim. As sales or company assets grow above $1M your company should start to consider higher limits. It is also common for larger corporations to expect their professional services vendors to carry $5M or even $10M in Professional Liability limits. Often, to procure limits of this magnitude you will have to provide the customer contract requiring it. The deductible/retention on these insurance policies can vary from $0 to 10% of the limit of insurance you carry, depending on your industry and insurance history.

In addition to that...

Professional Liability Insurance can provide your business with protection in the event that anything goes wrong with the professional advice, products or services you provide to customers or clients. In doing so, you can rest easy knowing that you have protected yourself and your business against unwanted outcomes.

You’ll Know It’s the Right Insurance If You...

  • Are a business owner and want to protect yourself and your business against unwanted outcomes
  • Want to ensure that you have a course of action in the event a customer or client is unhappy with the professional advice, products or services you have provided them with
  • Have a specific service and know General Liability offers inadequate protection
  • Are required to carry Errors & Omissions, Medical Malpractice, Technology Errors & Omissions or another sub type of professional liability
  • Cover Contingent Bodily Injury and Property Damage for professional services likely to cause such damage
  • Want to protect the financial future of your business

What Does Professional Liability Insurance Not Cover?

  • Excess amount

  • Bodily Injury and Property Damage

  • Data Security and Media Liability

  • Management related claims

How Much Does Professional Liability Insurance Coverage Cost?

The costs associated with Professional Liability Insurance vary in accordance with the specific policy you have chosen. Each policy is created based on the professional advice, products or services your company provides. While any professional can invest in Professional Liability for their business, the needs of each industry will vary accordingly and the coverage provided for one industry will differ from the coverage built for services in another.

Overall, the cost will be contingent upon the type of the insurance policy you choose, the limit, and the deductible/retention. You may choose a policy that includes one, several or all of the aforementioned protections, each of which have their own costs.

Professional Liability vs. General Liability

Professional Liability and General Liability insurance are the same in that they are designed to protect you from certain liabilities associated with your business. As a small business owner, regardless of your risk management techniques, you will always be prone to lawsuits, as you have the most risks. Both policies pay for the costs associated with these lawsuits and help you avoid having to close your doors because of a disgruntled or injured party.

However, Professional Liability is designed to protect lawsuits resulting from your professional services, while General Liability pays for bodily injury and property damage claims. If your business is involved in offering consultant services on the side, you still need to have the essential coverage that Professional Liability insurance provides. If you run your business out of your home, there are always risks associated with clients coming to see you.

Be sure to work with a licensed insurance agent to determine if you need both of these policies. Not all businesses will need Professional Liability, but every small business owner should be purchasing General Liability insurance. Even if you are never found guilty of any negligence, one lawsuit could put you out of business, even if just due to attorney fees. Protect yourself and your company by investing in the best protection in the form of General Liability, and Professional Liability insurance if it applies to your operations.

Frequently Asked Questions

what is professional liability insurance?

Professional Liability Insurance is one of the most common insurance types that business owners purchase. Professional Liability Insurance is also known as Errors & Omissions Insurance, due to the fact that it covers any errors or wrongful acts. This insurance essentially protects businesses, as well as their workers or individuals, against claims made by clients regarding inadequate work or negligent actions. Such negligent actions include mistakes made by either you or someone who works for you when attempting to provide a service. With Professional Liability Insurance, such actions would be covered and company losses would be accounted for.

What does professional liability insurance cover?

Professional Liability insurance covers any errors or mistakes made by you or people who work for your business, while trying to provide a service. Such branches of coverage under this insurance policy would include legal defense costs, judgments, and settlements (or company losses). Professional Liability insurance protects you, your business, and your business’s assets from financial risks in the event a client claims that you or an employee performed a service incorrectly. Professional Liability insurance provides you with the protection you’ll need to maintain your business’s reputation after any claims or lawsuits.

What is a professional limited liability company?

A professional limited liability company (or PLLC) is generally a business that exists specifically for licensed professionals, such as lawyers, doctors, architects, engineers, accountants, and chiropractors. Typically, these companies are formed to separate professional individuals from the entity and to ensure that the individual will not be personally held liable for the business’ debts or any lawsuits against the business that they are affiliated with. It is important to note that a PLLC will not protect an individual in the event they were to be involved in some type of malpractice they committed themselves.

How much does professional liability insurance cost?

The cost for Professional Liability Insurance can vary in regards to the size of your business and the type of industry. Nevertheless, what determines the cost of this insurance overall is the amount of coverage your company is willing to pay for. If your business decides to select a more basic, professional liability insurance plan, for example, then the cost will be less compared to a company that chooses a larger, more optimized insurance plan. Quite often, if you own a small business, you can expect to pay between $1,000 to $3,000 annually per million dollars in coverage.

Who needs professional liability insurance?

It is generally recommended for any business which provides a service for a fee. However, if you have a business in the service industry, it is highly recommended you obtain this coverage. A significant amount of businesses in the service industry typically purchase this insurance more than businesses in other industries. Typically, Professional Liability Insurance is most commonly purchased and recommended for the following industries: IT/Technical, Legal, Architectural and Design, Finance and Accounting, Management Consulting, and Engineering Services.

How much professional liability insurance do I need?

How much Professional Liability Insurance you need depends on the type of industry your business operates within. Depending on your business’ industry, the types of Professional Liability protections you need will vary. Additionally, the amount of Professional Liability coverage you need is dependent on a variety of other factors such as the size of your business, how many individuals you have employed, and types of equipment you have. Also take into account the extent of coverage you may need for any products your business has and for the services it provides.

Is professional liability insurance the same as errors and omissions?

Technically, Professional Liability Insurance and Errors and Omissions (E&O) Insurance are the same thing. While both terms are interchangeable, depending on a certain industry your business is in, you may use one term over the other. Generally, accounting, real estate, and tech professionals are familiar with the term Errors and Omissions Insurance, while architects and engineers are familiar with Professional Liability insurance. However, both terms practically involve the same thing: coverage for claims over your services and for errors or mistakes made by you or employees of your business.

How much is professional liability insurance for consultants?

The cost of Professional Liability Insurance for consultants is dependent on how much coverage your consulting business needs. Typically, Professional Liability Insurance is issued in increments of $1 million. Depending on the amount of coverage your consulting firm needs, your per-claim deductible can range from $1,000 to $25,000. Keep in mind that you should check your client contracts to ensure sure your insurance limit meets their specific requirements. You’ll also want to adjust your plan based on the number of people you need to cover and the professional responsibilities that need coverage.

Is professional indemnity insurance the same as public liability?

Though similar in terms of coverage, Professional Indemnity Insurance and Public Liability Insurance have their differences. While both types of insurance protect your business against legal action and compensation awarded to third parties, they are actually designed to offer different forms of protection in regards to your business activities. Professional Indemnity typically covers legal liability for claims that arise out of an actual or alleged breach of one’s professional duties. Meanwhile, Public Liability provides coverage for legal liability for claims of personal injury or property damage as a result of an event in relation to your business activities.

Is professional liability insurance the same as malpractice insurance?

Similar to the situation regarding Errors and Omissions Insurance, Malpractice Insurance and Professional Liability Insurance are generally the same thing. As both terms are interchangeable, the term Malpractice Insurance is simply more familiar to medical professions, where medical malpractice is more of a common issue. Meanwhile, the term Professional Liability Insurance is more familiar with architects and engineers. No matter which term you use, both insurances provide coverage over claims of negligence or mistakes made by you or a worker while attempting to perform a service.

What is professional liability insurance for consultants?

Professional Liability Insurance for consultants is coverage necessary to protect you against the risk of lawsuits claiming negligence in the professional delivery of your consulting work. This insurance protects your consulting business in the event a client claims you or a worker provided incorrect work, made errors or oversights, or that your business failed to commit to professional duties. The coverage also takes care of any court costs you may otherwise have to pay out-of-pocket and any settlements or attorney fees. This policy is intended to safeguard your consulting firm and provide coverage for unique risks typically associated with consulting businesses.

What is the purpose of professional liability insurance?

The purpose of Professional Liability Insurance is to protect business owners from third party claims of negligence and mistakes, made by yourself or by one of your workers, while providing a service. Many professionals in various industries need and rely on this insurance to cover lawsuits, court settlements and any other court costs regarding such claims. Professional Liability Insurance also helps businesses redeem themselves and recover their reputation. The purpose of this insurance is to protect you and your business against unwanted outcomes.

Why do I need professional liability insurance?

You need Professional Liability Insurance if you own a business that provides services or if you have a business in an industry where this type of insurance is most commonly purchased. You may already have General Liability insurance for example, but if you want additional protection for the diverse risks commonly associated with Professional Liability, you’ll want this insurance. Generally, most business could use this type of insurance, but service industries in particular should obtain Professional Liability since there is increased risk of malpractice or errors while performing a service; all incidents that would otherwise be unprotected.

Does umbrella insurance cover professional liability?

Umbrella Insurance offers additional liability coverage that many not be found or offered from a general liability policy. It is designed to fill in empty areas between existing policies and takes over when the coverage on your existing policies deplete. The insurance does not inherently “cover” or take the place of professional liability, but rather acts as extra coverage or “support” for professional liability (as well as other policies). In other words, Umbrella insurance can extend and go beyond the limit of your existing policy while also protecting you from bodily injury liability claims and even property damage liability claims.

Is professional negligence a tort?

Professional negligence is a breach of fulfilling a duty of care or a service correctly for your client. In the English law, professional negligence is in fact a tort, or in other words, a wrongful act or an infringement of a right which leads to legal liability. In professional negligence, the duty of care is a common law arrangement where the client expects an adequate level of professionalism and standards commonly held by those in the according profession. When the arrangement to perform a duty of care is broken or breached by your business, then it is considered professional negligence, or a tort.

What are the elements of professional negligence?

Professional negligence include three key elements: a duty of care is owed by the professional; that duty is breached; and a loss is caused to the injured or affected party as a result of the breach. It is important to note that a professional is only liable for their client’s loss (such as injury) if it is in accordance to their own failure of care which made them negligent. In simpler terms, if the key elements of professional negligence are to be applicable to the professional, then there is a tortuous breach and the professional is then liable.

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