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Suppose you deliver any type of specific professional service. In that case, you should know that typical general liability insurance won’t be able to help anything if your clients accuse you of errors in your professional capacity.
Thus, professionals of this type must protect themselves and their practice by availing of professional liability insurance.
This article will discuss everything you need to know about this specific type of insurance so that you can make the best decisions regarding your financial protection.
What Is Professional Liability Insurance?
One of the most well-known names of this type of policy is “Errors and Omissions Insurance”, or E&O – especially among real estate agents. It also goes by the term Medical Malpractice Insurance for medical professionals. It can also go by several different names depending on the profession of the policyholder.
If your clients claim that some error in your practice led to physical or financial damages, you’re going to have to face lengthy and costly legal battles. Whether the claim is true or not, the legal costs of this move can potentially damage your bottom line – especially since general liability doesn’t cover these kinds of problems.
Luckily, professional liability insurance serves as your protection in these types of situations.
This type of policy typically works on a claims-made basis. This means that professional liability insurance will only cover claims made during the active period of the insurance.
Any claims made before or after the active insurance period will not be approved – although some policies offer specific lengths of retroactive dates, which means that some policies allow payouts to incidents that happened within a certain span of time before the activation.
What Does Professional Liability Insurance Cover?
Where general liability insurance protects your business against known dangers that might occur on any third party, E&O insurance covers a specific range of damages that only your profession can do.
Covered Circumstances
E&O coverage will protect you and your practice if you ever face the following situations.
Negligence
The basic definition of negligence is the failure to act reasonably under specific situations. This definition encompasses many potential professional forms, such as failure to obtain the proper consent for a medical procedure, loss of an opportunity due to wrong professional advice, etc.
Service errors
Any mistakes in the delivery of your service that damaged the client in any way will be brought up to court. Professional liability covers the settlement fee and most other financial expenses that might happen.
Omissions
An omission is a specific type of professional failure where inaction, despite clear consequences, leads the client to significant damages.
Clients can sue for omission when they perceive that you should have done or known something within your professional capacity, but you neglected to do it.
Misrepresentation
Misrepresentation is common among professions that require contracts.
Contractors, performers, marketing firms, etc., can be accused of misrepresentation when the client perceives that the practice lied to encourage them to sign the contract, resulting in damage.
Wrong advice
Clients can sometimes be dissatisfied with the correctness of your professional counsel, and if they perceive the problem gets too severe, they can sue you for wrong advice.
The legal battle and settlement fees require to prove your innocence can be significant unless you have professional liability coverage.
Contract violation
According to the American Bar, any contract carries an implied duty of good faith and fear dealing. This duty is the responsibility of any party to the contract and will receive the full benefits of the agreement signed. There is no specific definition of this duty – the courts are given the freedom to decide.
If you violate a contract or the implied duty every contract carries, you run the risk of enormous settlement fees or a lengthy and costly legal battle. Professional liability insurance protects you from this type of financial harm.
Covered Expenses
This type of policy will cover the following financial cost to any of the covered circumstances above.
- Attorney fees. The payment that you give any attorney representing your case. Depending on certain factors such as complexity, case hours, support staff, etc., your attorney fees can go from $3,000 to $150,000.
- Court and other legal costs. This includes expenses like courtroom reservations or expert witnesses.
- Administrative costs. Your defense will incur logistical and administrative costs, like court reporter and office manager fees.
- Settlements. Any settlement reached between you and the client within and outside of the court will be covered.
- Judgments. If the court ruling says that you should pay specific amounts in compensation or punitive damages, E&O insurance will cover the fees.
Limits to Coverage
There are also certain acts and conditions that your professional liability insurance will not cover. This includes:
- Events that happened before your policy was active. Most policies will only approve claims within the active dates, but some provide a retroactive coverage period. Incidents outside of those periods will not be covered.
- Illegal acts. You won’t be covered if you purposefully did something wrong or broke the law.
- Property damage and bodily injury. This falls under general liability insurance.
- Employee injuries and damages. This falls under worker compensation insurance.
- Workplace harassment and discrimination filed by employees. This falls under employment practices liability.
How Much Is Professional Liability Insurance
The monthly premiums associated with professional liability insurance vary depending on certain factors. This includes factors such as:
- Industry
- History
- Location
Who Needs Professional Liability Insurance
Any business or service that provides a professional service should get professional liability insurance.
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