Who Needs Professional Liability Insurance?
By Doug Sawyer
There’s a right time and a wrong time to ask who needs professional liability insurance.
The right time is when you’re conducting a risk management and insurance review or securing insurance for a new business. The wrong time is when you’re dealing with a claim that you’ve just realized commercial general liability insurance won’t cover.
What Is Professional Liability Insurance?
Professional liability insurance is sometimes called errors and omissions (E&O) insurance. It provides coverage for claims alleging financial harm due to errors, omissions, misrepresentation, or negligence in the course of providing professional services. Medical malpractice insurance is a special type of professional liability insurance designed for doctors and legal malpractice insurance is a similar product for attorneys.
If a covered claim arises, professional liability insurance will cover the policyholder’s defense costs as well as any settlements or judgments, up to the policy limit and in accordance with the terms of the policy. Insurance may also cover other costs (such as certain professional fines and penalties), but this varies from policy to policy.
Who Needs Professional Liability Insurance?
Professional liability insurance is suitable for a wide range of professions, including real estate agents, insurance agents, financial advisors, accountants, tax professionals, graphic designers, software developers, architects, and consultants.
To determine whether someone needs professional liability insurance, consider the following:
• Is professional liability insurance a requirement under state law? Some states make professional liability insurance mandatory for certain professionals. For example, doctors may need to carry medical malpractice insurance and attorneys may need legal malpractice insurance.
• Is professional liability insurance a requirement for membership in a professional organization? Professionals who want to join an industry organization or trade association may need to obtain insurance.
• Does a client require professional liability insurance? Some large clients may include insurance requirements in their contracts. This provides protection for both parties.
• Might providing professional services lead to allegations of financial harm? Even if professional liability insurance is not a legal or contractual requirement, it may be a smart idea. If a missed deadline, oversight, or subpar service might financially harm a client – or if a client may claim financial harm, regardless of whether the claim is valid – professional liability insurance provides important protection.
• Does the individual have coverage under another policy? Some professionals assume they have coverage because they have commercial general liability insurance. However, this does not provide coverage for claims involving financial harm stemming from professional services.
Commercial General Liability Insurance vs Professional Liability Insurance
Many companies and individuals providing professional services need both commercial general liability insurance and professional liability insurance. Although both provide coverage for third-party claims, the types they cover are different:
• Commercial general liability insurance provides coverage for third-party claims involving bodily harm or property damage. It may also cover claims involving copyright infringement, defamation, false arrest, and other types of personal and advertising injury. However, it will not cover claims involving financial loss due to professional services.
A common example of a commercial general liability insurance claim is a slip and fall incident. If a customer falls and is injured on a business’s premises, the business may be held liable. Commercial general liability insurance provides coverage for the resulting claim. Bodily injury claims may also arise in other scenarios, such as if an item falls on a customer or a sharp edge cuts a customer’s hand. Property damage claims may occur if a customer’s belongings are damaged during a visit to the business or if a worker accidentally damages a customer’s property while working at the customer’s home or business.
• Professional liability insurance provides coverage for third-party claims involving financial harm stemming from professional services. Most policies do not provide coverage for claims involving bodily injury or property damage, although there are some industry-specific exceptions. For example, medical malpractice insurance provides coverage for bodily injuries resulting from medical services.
A common example of a professional liability insurance claim is a lawsuit alleging that a missed deadline led to financial harm, such as an accountant who misses a tax filing deadline and faces a lawsuit over the resulting penalties. Other claims include allegations of breach of contract, misrepresentation, negligence, non-disclosure, and services that fail to meet industry standards. Examples include a real estate agent who fails to disclose pertinent information, a financial advisor who fails to warn about potential losses, and software developer who delivers a program that does not meet the specifications stated in the contract.
Do You Need Professional Liability Insurance?
Don’t wait until you’re facing a lawsuit to ask who needs professional liability insurance. Regardless of the outcome, defending yourself in a lawsuit is often expensive. Professional liability insurance provides important coverage. Century Risk Advisors can help you determine what coverage you need. Contact me or reach out to me using the contact information below
Douglas B. Sawyer Risk Advisor/Strategic Relationships
Cell: 305 301 1362 Email: Douglas.Sawyer@centuryra.com