What is Professional Liability Insurance?
Professional liability insurance, often called Malpractice, Errors and Omissions, or Professional Indemnity Insurance, protects professionals against:
- Actual or alleged negligence (mistakes)
- Missed deadlines or undelivered services
- Accusations of slander or libel
- Data breaches
If your client claims a loss for any of the above reasons, professional liability insurance can cover your defense costs, such as hiring and paying attorney fees, court costs, and settlements.
Who Needs Professional Liability Insurance
Businesses that provide a professional service should consider liability insurance, especially if they offer advice or recommendations to their clients. Some professions, like lawyers and doctors, are required to carry this insurance. Some other professions that should consider this type of policy are:
- Accounting and Auditing
- Advertising
- Application Developers
- Computer Programmers
- Consultants
- Database Engineers
- Education
- Finance
- Graphic Design
- Internet Services
- IT Consulting
- Photography
- Professional Services
- Project Management
- Real Estate Agents
- Software Developers
- Technology
- Web Design Services
- Web Developers
Why You Need Professional
Liability Insurance
Just because you keep the customer first, prioritize safety, and do everything by the book doesn’t mean your business is safe from a lawsuit. You can’t control what your employees do all the time and, unfortunately, mistakes happen. Even if they don’t, you may still get sued by someone just trying to make some easy money. Anyone can allege anything against your business, and the court and attorney fees for a multi-year suit can be crippling even if you come out on top.
Professional liability insurance will pay those fees so you can continue operating your business during a lawsuit.
Professional Liability Coverage in Action
These are some examples that will help clarify why this policy is essential for your business:
Example #1: Your consulting firm gives professional advice to a company to help them streamline their operations. Unfortunately, they implement your recommendations in the wrong order, costing them money. Despite the fact that they are in the wrong, they drag you into a lengthy and expensive court battle. Because you have professional liability insurance, those costs won’t bankrupt your business during the suit.
Example #2: Your boutique web-design company creates a sleek new website for a local business. Shortly after, the site is hacked and protected client information is stolen. Your client claims you didn’t deliver a secure site and sues you for negligence. Professional liability insurance can cover the cost of defense, proposed settlement, and maybe even credit monitoring for those impacted.
Example #3: You’re a real estate agent who finds a young couple their dream home. However, the day they moved in a pipe burst, flooding the second story and ruining the walls below. The couple blame you for convincing them to buy the house and sue for the cost of repair. Fortunately, you have a record that they waived the home inspection in their contract, so the court won’t find you at fault. Professional liability insurance will help you cover the cost of your defense in the meantime.
Example #4: As an accountant, you help customers to do book-keeping tasks and advise them on wealth-management. One client comes across a few errors you made in the past, costing them money. Errors and omissions insurance helps to cover the cost of the damage and any legal defense or court costs that come with fixing your mistakes.
How Much Does Professional Liability Insurance Cost?
While liability policy costs vary depending on your industry, Progressive lists their average monthly premium at $46. Factors that will impact your premium include:
- Business type
- The number of employees
- Business Age
- Claims history
- Credit score
Costs also vary due to the coverage limits and deductible that you pick. Normally, coverage limits are issued in million dollar increments and the deductibles range from $1,000–$25,000 per claim. While one million dollars may sound like more than you’ll ever need, these claims often start even higher. Our guide to coverage can help you understand more about what affects the cost of protection.
Professional Liability Insurance for the Medical Industry
Professional liability insurance for physicians, nurses, dentists, chiropractors, and others in a medical profession is often called malpractice insurance. Professional medical testers and lab technicians also fall into this category.
Professional Liability Insurance for Consultants
Professionals in insurance, real estate, appraising, and consulting may purchase another form of Professional Liability Insurance known as Errors and Omissions insurance (E&O).
The Technology Industry
Professional liability coverage can be tailored to your specific niche in your industry. This is particularly true for those in the ever-evolving tech field. From developers to hosts to creators, liability insurance can be written to cover risks specific to each industry. Some additional coverages, like personal injury, breach of warranty, or intellectual property, can be applied to any business that provides a service or offers advice.
General Liability Insurance Vs Professional Liability Insurance
It can be hard to tell the difference between the two types of liability insurance. While there is some nuance, it boils down to a simple overarching rule:
General liability covers physical harm to you, your business, or a third party. Professional liability covers financial harm that results from negligence in your provided service.
Typically, this type of coverage is for jobs where there is a professional code of conduct or standards which are used as a measure for evaluating how your services should be judged. Whether or not you have violated those standards is up to the interpretation of the courts.
A claim in either of these categories can be the financial ruin of your business. Whether there are actual problems in your company that need to be addressed or you’ve ended up on the wrong end of a frivolous money-grab, you must be ready for the costs that come with a court battle. Talk with our licensed insurance professionals to find out if you need a professional liability insurance policy. You can also read our our complete article on ‘General Liability vs. Professional Liability Insurance.’
Understanding “Claims Made” and “Retroactive Coverage”
A professional liability policy is normally sold on a claims made basis. In other words, you can’t buy insurance to cover a lawsuit you’re already embroiled in.
If you find yourself needing insurance for a past or ongoing case, some insurance companies let you add retroactive coverage. If a claim is filed for work completed before the policy becomes active, it can be covered.
If you need to cancel your policy, be sure to request an extended reporting period. Otherwise, if you cancel the policy and a claim is filed against your company, the event won’t be covered even if it occurred before the cancellation. It is important to understand all the terms and definitions listed in your policy.
Professional Liability Insurance Quotes
We can help you find protection for your business and keep your mind at ease. Our mission is to get you an affordable business insurance quote that meets the needs of your business. For a competitive insurance quote, just fill out the form at the top of the page and one of our agents will connect with you.