Professional liability insurance can really come in handy when a business or professional (such as a doctor or lawyer) runs into claims that can cost them a lot of money. To better understand what professional liability insurance is, why it is necessary, and how it works, keep reading.
Both specialty businesses and professionals can face exposure because of the services they provide to customers and clients. Professional Liability is a generic term that represents insurance policies that can include a few different “specialty” types of insurance that suit different types of businesses and professionals (for example—appraisers and notaries).
Even if a business or service provider doesn’t make a mistake, a customer can still sue them if they felt a mistake was made. Professional liability can provide financial coverage for the expensive legal costs that can come with fighting claims of negligence, misrepresentation, or inaccurate advice.
Each type of professional liability insurance provides coverage for a specific service and unique exposures that a more standard general liability insurance policy won’t cover. You can generally expect a professional liability policy to cover negligence or alleged negligence, defense costs, libel or slander, and copyright infringement.
It’s generally a good idea to get professional liability insurance if you:
Are required to sign any contracts that mandate coverage
Offer any form of professional services directly to customers
Regularly give advice to clients
There are a few different popular types of professional liability insurance that can really come in handy, such as:
Errors & Omissions (E&O). E&O provides coverage for professionals such as insurance agents, adjusters, real estate agents, accountants, architects, surveyors, and appraisers. This type of policy covers negligent acts or omissions that may result in financial harm to a third party
Directors & Officers (D&O). Directors and officers of a corporation or other type of legal entity can receive coverage through a D&O policy for wrongful acts committed while acting in their capacity as directors and officers.
Medical Malpractice Insurance. This type of policy is designed to protect medical professionals such as doctors, surgeons, nurses, beauticians, dentists and even social workers whose negligent acts or omissions can lead to injury or harm to the patient or client. This is the only form of professional liability that may include coverage for bodily injury.
Employment Practices Liability Insurance (EPLI). EPLI protects businesses from claims made by current employees, former employees, or potential employees who allege that their legal rights were violated. Violations can include incidents such as sexual harassment, discrimination, wrongful termination, or breach of employment contract.
Coverage for a professional liability insurance policy is typically written on a claims-made form, but can also be written on an occurrence form. The claims made form requires claims to be made during the policy period. Claims may take years to develop, that is why most policies contain a “retroactive” date. The policy will cover claims made on or after the stated retroactive date on the policy. Some carriers offer “full prior acts” coverage which provides coverage for incidents that may have occurred in the past.
Typically, a professional liability policy excludes services that tend to be covered under general liability policies. Professional liability insurance also doesn’t cover bodily injury, property damage, or any work-related injuries or illnesses. To cover claims relating to bodily injury and property damage, you will need a general liability insurance policy. For work-related injuries or illnesses, a workers’ compensation policy is needed. If your business is at risk of a data breach, you will also want to consider taking out cyber insurance that can provide protection in the event that you lose confidential or sensitive information about your customers in a data breach.
It’s common to find the following types of coverage excluded from a professional liability policy:
Workers compensation claims
Any personally identifiable information
Any services performed that are not specifically mentioned and accepted by the carrier
The cost of professional liability insurance will depend on your unique business and your coverage needed. The following factors can impact how much you will spend on this type of insurance:
Business type and size
Number of employees and clients
Years in business
When it comes time to apply for a professional liability insurance policy quote, you’ll want to have the following documents on hand to make the process easier.
Copies of contracts
Information about previous professional liability coverage
Quality control processes
Employee training initiatives