General liability insurance gives you extensive coverage for accidents in the workplace, or on job sites, and is an important foundational policy for every business owner to have. However, it doesn’t cover you for professional mistakes – real or perceived – that a client claims you are liable for.
Professional liability insurance offers coverage for legal claims brought against you by a client or business that claims you were negligent in your service or counsel.
What Professional Liability Insurance Covers
Like it or not, mistakes happen from time to time. We live in an imperfect world. But making a mistake doesn’t have to break the bank. Make sure professional liability insurance has you covered should your business come under attack from another business or client who believes that you are responsible for their financial losses.
The kind of claims that fall under professional liability are:
- Inaccurate advice
- Violation of good faith & fair dealing
It’s important to remember that this insurance covers you even if the claims against you are frivolous. Regardless of the validity of a claim that you were negligent when advising another business or a client, professional liability insurance can cover costs for:
- Lawyer fees
- Court expenses
- Settlements and judgements
Also known as Errors and Omissions (E&O) Insurance or, in some cases, Malpractice Insurance, this is the only coverage that stands behind you if you are faced with a legal action from a client who claims that your mistake or oversight lead directly to their loss in revenue.
Types of Professional Liability Policies
Determining which kind of professional liability policy is right for you is easy. One type is appropriate for active, on the job coverage, and another has you covered if a past client decides to bring a lawsuit against you when you are no longer in business.
Claims-Made: a policy that must be in effect at both the time when the event took place and when legal action is taken in order for a claim to be paid.
Occurrence: an extension policy, necessary after you’ve retired or moved on to a new profession, this coverage may pay a claim made for an event that took place during your previous time of coverage.
Who Needs Professional Liability
Service professionals are those at the greatest risk of having a lawsuit result from a service they’ve provided. Here is just a short list of professions that can benefit from professional liability coverage:
- Advertising Agencies
- Financial Advisors
- Hair Stylists
- Personal Trainers
- Real Estate Professionals
- Software Developers
- Website Design and Developers
- Wedding Planners
A business can be accused of anything from poor workmanship to improper advice, and can even be taken to court for service or advice not given.
Coverage for Services or Advice Not Provided
You may not realize it, but professional liability can also protect you against claims resulting from a service or advice that you didn’t provide.
If a client determines that you neglected to provide them with an imperative piece of advice or a necessary service, they can bring a suit against your business. You may even find yourself in hot water for cancelling a contract.
Even if you’ve returned a deposit and provided plenty of cancellation time before an event, you could still be facing a lawsuit for failing to provide a service as contracted. Promise your client big results and fall short? Your lack of results could end up costing them money -- and land you with a big lawsuit for not delivering on your professional promise.
Even if a court finds that you are not at fault, you can lose a lot of time and money fighting the claim. Professional liability insurance may help cover the associated costs of attorney’s fees and settlements or judgements that your business may incur.
What Professional Liability Doesn’t Cover
While E&O insurance may have you covered for many professional mistakes as well as services or advice not provided, there are some exceptions to coverage that you should be aware of.
Professional liability insurance, generally, does not cover:
- Non-financial losses
- Losses caused by dishonest or intentional acts
If your claim is based on an accidental mistake that results in a need for legal defense, professional liability insurance will likely have you covered, up to the limits of your policy.
Professional liability is the insurance policy that you can count on to protect you should come up against accusations of professional mistakes and financial damages to a third party. No one can expect to be perfect, but being prepared for accidental errors or omissions is just smart business.