What Is Professional Liability Insurance?

Does your business provide advice or expertise in a specific field? Even the most thorough and experienced professional will make errors. We're all human and unfortunately clients usually aren't too understanding if the mistake costs them considerable amount of time and money. Today I'm going to explain how professional liability works and why certain professionals really need it. Professional liability insurance is also referred to as errors and omissions coverage, i.e. E&O coverage, and medical malpractice insurance depending on the profession. These terms are used interchangeably and it can protect you and your business against actual or alleged negligence that may have occurred while providing your professional services. And these claims can vary from giving incorrect advice or omitting a piece of information to failing to deliver your service within a desired time frame. Professional liability coverage is useful for an array of business types throughout various industries. Examples include engineers or designers sued by a client for misinterpreting renderings or ordering costly material that can't be used, or for damages to miscalculated engineering that doesn't perform to the code or specifications. Also project managers that are sued for project delays or cost overruns, as well as a massage therapist that gets sued from a client for purported tissue damage following a massage. And even a medical billing employee sued for incorrectly coding a medical procedure on an insurance form. These are just a handful of scenarios in which a professional liability policy would cover your expenses and damages resulting from a negligence claim. Your professional liability policy will also provide legal defense costs when a covered claim is reported, which could end up saving you tens of thousands in just legal fees alone. And most carriers that offer professional liability will defend you immediately and expertly, even if the claim is completely groundless. So regardless of your business type, your size, or your industry, if your organization is sued, you could face significant costs for legal defense, whether or not you have committed any actual wrongdoing. Remember, insurance is there for the possibility of something happening. You may also have clients that request and require you to provide a certificate of insurance that proves that you have a professional liability policy in force. And this may be in addition to having a general liability policy in place too. You can check out our video on general liability coverage to learn a little bit more about that. The majority of E&O policies are going to be written on a claims made basis. This is just a fancy insurance lingo, meaning that in order to get your insurance benefits in a claim, your professional liability policy must be active when an alleged mistake occurs. And when the claim is actually filed. A claims made policies coverage kicks in only when you file the claim during the policy period. Your policy will also have a retroactive date, which confirms the original date of when the policy or coverage began. However, if the policy lapses for any reason, you're going to lose that retroactive date and any claims that may arise from when the policy was actually in force will not be covered. So in other words, continuous coverage is key with professional liability policies, especially if you don't want to pay out of pocket expenses in a lawsuit. So don't let your policy lapse. So how much coverage will you need? The basic standard amount of coverage is $1 million. However, depending on the size of your business and the scope of services, you may need higher limits, maybe of $5 million or maybe even $10 million. Premiums for E&O policies will also depend much on your industry type, the size of your business, and the actual amount of coverage you're going to need for professional E&O. Not every industry requires professional liability coverage, and a knowledgeable and trusted agent can help you determine if your business has an E&O exposure and also help you determine the right amount of coverage that you would need. As always, please hit that subscribe and like button so you keep up with our new weekly content.