You may know it as errors and omissions insurance, but professional liability insurance can protect you and your business if you are sued by a client for negligence.
You might think your business is fully covered from claims against you because you have a general liability insurance policy. But the truth is that if you have a consulting or professional services business, you may be exposed to financial loss for claims that are not covered by your general business policy. If that happened, a single judgement against you could cripple your business, and you could lose everything you’ve worked hard to build.
That’s why you may also need a professional liability insurance policy to protect you and your business. Professional liability insurance can protect you from incurring the full cost of defending your business in a lawsuit, or from having to pay out a large judgement. Though it can take different forms depending on the kind of business you have, you should be sure to have professional liability insurance to protect the business you’ve worked hard to build.
What is ‘Professional Liability Insurance?
If you are a professional who provides services, such as accountants, lawyers and physicians, professional liability insurance can protect you against lawsuits filed against you by clients for negligence, malpractice, misrepresentation or other claims. Professional liability insurance is specialty coverage against claims that would not be covered under endorsement to your homeowners policy, if you work from home, business insurance policies or general liability insurance coverage.
Depending on your profession, your professional liability insurance may have a different name. If you are a physician or medical professional, it is called medical malpractice insurance. If you are a real estate agent or broker, for example, your policy would be called errors and omissions insurance.
What Does Professional Liability Insurance Do?
A typical professional liability policy will protect you and your business against losses that occur because of claims made against you during the policy period as long as the claim is for a covered error, omission or negligent act committed during the policy period. Claims for incidents that took place before the policy went into effect are typically not covered, though it may be possible to purchase a policy with a retroactive coverage date.
Most policies do not provide coverage for claims that are the result of your criminal actions, nor will they cover legal fees to defend you from criminal prosecution. In addition, most policies will only cover you and your business for liabilities that are specifically included in your policy and will not provide coverage for liability that is not listed. Coverage for data breaches and other technology issues, may not be included in your policies. If it is not, you can get a separate policy that covers data security and other technology security-related issues.
Some professional liability policies are more specific than others, and different policies may be very different in the coverages they provide. Policies that cover data breaches, for example, may differ in whether they use the date the breach took place to determine if it occurred within your policy period, while others may use the date the breach was discovered.
In addition, some terms and wordings may sound similar and be confusing to anyone who is not a lawyer or an insurance expert. Make sure that you carefully review any professional liability policy with an expert so that you have a complete understanding of the coverage you are purchasing.
What Does Professional Liability Insurance Cover and Not Cover?
While every policy can be different and include a specific list of what it covers and does not cover, here are general guidelines about what is covered and what is not under a typical professional liability insurance policy:
- What is covered
- Alleged or actual negligence
- Defense costs
- Personal injury, such as libel or slander
- Copyright infringement
- Claims arising from services provided in the past
- Claims and damages
- What is not covered
- Bodily injury or property damage
- Fraudulent acts
- Employment matters
- False advertising
- Patents and trade secrets
- Failure to protect personally identifiable information
We will cover these and more in future posts.
Why Do I Need Professional Liability Insurance When I Already Have General Liability Insurance?
If you already have a general liability insurance policy to protect your business, you are covered against any liability for any physical injury or property damage that occurs on your property or that you cause. But that policy does not cover damages that may occur to your customers and clients because of your error.
For example, if you build a website for your client and inadvertently use copyrighted material, you could be sued and ordered to pay damages for copyright infringement. Your general business liability insurance would not cover such a claim, but a professional services liability policy could cover your legal fees and judgements against you.
Call or email Scott Hartzell at 215-997-5800 to get a thorough examination of your existing coverage and to see if a professional services liability policy is right for you.