A Beginner’s Guide to Professional Liability Insurance

| October 06, 2022

Are you a professional who provides services to other people? Professional liability insurance, also known as Errors & Omissions insurance, is something all professionals should carry. Contrary to popular belief, professional liability insurance is not just for doctors and lawyers—it's also for anyone who provides professional services for a living. That could include accountants, architects, contractors, engineers, real estate agents, stockbrokers, web designers, and even freelance writers!

Keep reading to learn more about Professional Liability Insurance.

What Is Professional Liability Insurance?

Professional liability insurance is a type of insurance that protects you from lawsuits alleging your error or omission in providing your professional services. It offers coverage when an allegation arises that you failed to provide your services, resulting in a financial loss to your customers or clients. It is an essential part of your business and protects you and your company if you are sued, whether it is because of your negligence or not.

As general liability insurance policies do not protect against claims arising from negligence, malpractice, mistakes, or misrepresentation, professionals with expertise in a specific area require this type of insurance.

What Does Professional Liability Insurance Cover?

Professional liability insurance can help pay for legal defense costs and any damages cited by the court if you are sued by a client or third party. It can protect you against:

Errors and Oversights

An oversight or a mistake by you or your company can cause serious setbacks for your work, clients, and reputation. It may even cause the clients to file a lawsuit. Opting for the right liability insurance should be part of risk management. It will protect you from paying out-of-pocket for any legal fees and court costs related to errors and oversights like misspelled words or incorrect figures. 

Breach of Contract and Missed Deadlines

Suppose you break a written agreement with your client, for example, by submitting an incomplete project or failing to meet an agreed-upon deadline. In that case, this type of insurance will help cover any financial loss caused by your error.  

Accusations of Negligence

You can be accused of negligence if your business fails to comply with industry standards or follow project specifications. For example, if an architect delivers a project blueprint that does not meet the project specifications and the client sues him for that – professional liability insurance can cover the costs involved.

Undelivered Services

If you are unable to fulfill a service to your client, you can be held liable for damages. It can be due to various factors, such as lack of time or resources. Professional liability insurance covers any negative consequences that arise from undelivered services, including legal fees and fines.

For instance, if you are a lawyer and fail to file your client's paperwork on time, that could lead to a lawsuit, and your client could sue you for malpractice. It could be covered under the professional liability insurance policy because it was caused by your failure to file the paperwork on time.

What Is Not Covered by Professional Liability Insurance?

Client Injury at the Workplace

This insurance will not cover if your clients suffer any injury or property damage while doing business with you. You are only covered by general insurance if your client's files are destroyed by fire or if your client slips and falls in your office.

Employee Injuries

A worker may get injured while at your premises.  For example, if a janitor hurts his back while lifting something heavy, workers' compensation insurance will help retrieve the costs incurred. 

Damage to Business Property

Professional liability insurance does not cover if items on your property get damaged, destroyed, or stolen. Commercial Property insurance would provide coverage for your contents and tenant improvements. 

Lawsuits Filed by Employees

This insurance policy does not cover employee lawsuits against your company claiming discrimination, harassment, and wrongful termination. Check for employee practices and liability insurance for such claims.

Professional liability insurance has other exclusions as well. Please consult with your insurance company and ensure you get the complete information on the exclusions before you decide on your policy.

Bodily Injury and Property Damage

This insurance policy does not cover allegations of Property Damage or Bodily Injury to a third party arising from your professional services. This would be covered under a General Liability policy.

Professional liability insurance has other exclusions as well. Please consult with your insurance company and ensure you get the complete information on the exclusions before you decide on your policy.

How Much Does a Professional Liability Insurance Cost?

The cost of professional liability insurance is determined by your profession, experience, gross receipts and your prior claims history. The financial impact of the error will be determined by the industry you work in. As a result, insurance may be more expensive for an engineer than for a fitness instructor.

Professional liability insurance is an essential investment for every professional, as it delivers peace of mind by protecting your business from potentially expensive lawsuits. It is one of those things that you hope you never need, but it's nice to know that you're covered if a legal situation ever arises.

If you need more insights on the insurance policies and their coverage, you can contact DiNicola Insurance Services, LLC. We provide comprehensive insurance solutions, risk management strategies, and other employee benefits at minimal possible costs. Contact (415) 564-4400 or click here to ensure a risk-free future.