Professional Liability Insurance: Definition, Types, Importance and Examples

InsuranceAdvisor.com
By Insurance Advisor Team
Professional Liability Insurance: Definition, Types, Importance and Examples

In today’s market, starting a small business or even a startup is a big accomplishment. So, protecting it is important because even a small mistake could undo your hard work.

Now, you might be thinking, what can you do in this scenario? Well, consider taking Professional Liability Insurance to shield your business from lawsuits that commonly occur. This insurance is also known as errors and omissions insurance (E&O). For this article, we focus on non-medical professional services because there is a difference in what professional liability covers between the medical industry and all other professional industries.

Let’s take a closer look at what it covers, why a business needs it, and the costs involved. We include some examples of Professional Liability claims. In this guide, we have everything that you should know about professional liability insurance. We hope this helps!

What is Professional Liability Insurance?

Professional Liability Insurance is coverage that protects your business and you against the claims of financial loss that your clients or others make for errors, omissions or negligence in the professional services provided. It shields your business’ finances by covering the legal expenses and damages associated with professional liability claims. These include court costs, attorney fees, settlements, and judgments ordered by the court.

Professional liability insurance is needed for those businesses that provide professional services to customers, such as architects, accountants, information technology professionals, engineers, real estate agents, appraisers, and other professionals. Moreover, professionals in these industries require this coverage because general liability insurance doesn’t cover claims of financial loss; it only insures against liability caused by a business’s negligence that causes bodily injury, property damage, and limited personal or advertising injury liability.

Why does your business need PLI?

When you start or launch your dream business, the most important factor is pleasing your clients. However, if, at some point, you can’t satisfy your customers, and they allege that your firm’s mistakes, negligence, or oversight cost them money, this is when you need professional liability coverage. In these situations, your company faces a legal battle over your client’s financial loss. Even if you or your employees did nothing wrong, your firm will need to pay for defense costs out of the bottom line.

Thus, you need the right small business insurance coverage to protect you, your business, and your finances because even a small legal battle can drain your business of time, energy, and money. The major purpose of this insurance is to provide your company with a legal defense for professional liability claims and lawsuits and payment of the awarded judgment if your firm is liable.

What does it cover?

Professional Liability Insurance is an indemnity insurance that provides liability coverage for claims of malpractice, negligence, and misrepresentation that result in someone losing money. Coverage is issued to individual professionals or professional firms for the following types of scenarios where you or your company is sued.

  • Negligence: If you’re a lawyer, and you fail to file a complaint on behalf of your client within the time of the filing, and your client loses money because of your delay, they can claim professional negligence.
  • Incorrect or misleading advice: If you are a financial consultant and you have provided incorrect information or you have misled your client about an investment, causing them a financial loss, they may sue you for the loss.
  • Misrepresentation: For example, if you’re a developer and you fail to reach your project deadline, and your customer is unable to open their business for the planned grand opening, thus incurring a loss in revenue.
  • Violation of laws and regulations: As a real estate agent, if you fail to disclose required information on a property to the purchaser, and it affects the value of the property after the sale, the purchaser may sue you for violation of disclosure laws.
  • Copyright Infringement: If your business is in advertising, your general liability excludes advertising injury. This coverage is found under your Professional liability policy. If an employee creates a marketing campaign for a client and unknowingly copies another company’s logo, slogan, or design that is protected by copyright, the rightful copyright owner can sue your firm for lost revenue incurred due to the copyright infringement.

What doesn’t Professional liability insurance cover?

Insuranceadvisor.com wants their small business owners to know what they are buying. There are exclusions in all policies, and professional liability is no different. Always read the policy exclusions. If you would like more information regarding this, you can always contact one of our agents.

  • Third-party property damage
  • Bodily injury caused by your business
  • Fraudulent acts
  • Employment practices
  • Auto liability
  • Employee injuries
  • False advertising
  • Cyberattacks-privacy breach
  • Directors or officers’ negligence

Who needs it?

Any business that provides professional services needs it. So, if you are offering expert advice, you would benefit from professional liability insurance. Here are some businesses that should consider professional liability insurance.

  • Administrative support companies
  • Consultants
  • Staffing companies
  • Engineers
  • Event Planner Insurance
  • Lawyers
  • Medical Billing Services
  • Notary Publics
  • Payroll Services
  • Travel Agents
  • Real estate agents
  • Property appraisers
  • Property inspectors

How it works?

The working process of Professional Liability Insurance is very easy. For example, suppose someone claims that your business or services have financially cost them. In that case, this insurance coverage will cover your legal fees, settlements, and judgments up to the limits of the policy. For example, suppose you’re an architect and, due to your services. In that case, the house owner has been injured, and he sues your company for negligence; you can claim this policy. In simple terms, you will get your money for your legal fight and settlement.

What is the difference between Professional Liability Insurance and General Liability Insurance?

The major difference between these insurance companies is the types of risks they cover. Professional liability insurance covers third-party claims of financial loss and general liability insurance covers third-party claims of physical bodily injury or property damage. To ensure your professional business is protected, it’s a good idea to carry both types of insurance.

Example of General Liability: When a customer slips on a wet floor in your store and gets injured, your general liability insurance can respond to their suit for damages from their medical expenses, lost wages, pain and suffering, etc.

Example of Professional Liability: If you are sued because your oversight in your services provided caused your client a monetary loss, your professional liability insurance provides you with legal representation and, for covered claims, pays the associated negotiated judgment or settlement.

How much does it cost?

Your professional liability premium depends on a variety of factors:

  • Industry
  • Location
  • Coverage limits and deductibles
  • Annual revenue
  • Experience-years in business
  • Payroll
  • Loss history

When you’re ready to purchase this insurance, you need to keep important information on hand, such as:

  • Sample contracts
  • Documentation procedures
  • Current and prior professional liability policies
  • Documentation of quality control processes
  • Employee training and supervision
  • Loss runs

How to submit a claim on your professional liability policy?

There are simple steps to report a claim to your professional liability insurance carrier.

Step 1: Never admit you or your company is at fault.

Step 2: Connect with your insurance agent or direct insurance carrier to report the claim.

Step 3: Give all details of the incident and provide any documentation to support your story.

Step 4: Work with your professional liability-assigned claim adjuster and legal team

How to find the best PLI?

In the USA, nearly all insurance companies offer professional liability insurance to small businesses. If you don’t have insurance, you can contact Insuranceadvisor.com. We can provide you with a quote based on your requirements.

Frequently Asked Questions about Professional Liability Insurance Policy

Your policy contract is proof of professional liability insurance, however if you need to prove to a client or others that you have this coverage, a certificate of liability insurance is provided.

Yes, it is the same as errors and omissions. For covered wrongful acts, it pays the damages and legal expenses incurred.

Most business owners can claim insurance premiums as a business expense, but you must check with your CPA or accountant to be sure. 

There are two main types of professional liability coverage forms – an occurrence-based and a claims-made based form. 

InsuranceAdvisor.com has a team of nationwide licensed insurance agents who specialize in commercial insurance. We are currently licensed in 21 states, so if we are not licensed in your state, we will not be able to offer you any insurance.

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