You’ve started your business and now you’re ready to protect it with insurance. But how do you know which insurance policy fits your business the best?
Professional liability insurance is also known as errors and omissions liability insurance. Some states require certain industries to carry this liability insurance, such as medical practitioners. Any business that deals with customers and the public should consider professional liability insurance. Even small practices such as massage therapists should invest in professional liability. This includes businesses that handle sensitive information such as accountants, IT consultants, insurance professionals, real estate agents and more.
Does Professional Liability Cover Legal Costs?
Professional liability can help cover legal costs for relevant claims. This insurance generally covers claims due to professional negligence. This means your business or practice has made a mistake resulting in injury, loss or damage. Examples of these include:
- A clerical error causes a client to lose money
- A medical professional misdiagnosis a patient, causing their condition to worsen
- An architect’s designs are faulty, causing their client money and resources
- An IT consultant gives a client bad advice and the client loses access to their computer
- An investment advisor gives bad advice and their client loses money
There is liability insurance available for nearly ever industry. Medical professionals and practices should consider medical malpractice insurance, which is a professional liability insurance specifically for defending against malpractice claims.
Professional Liability vs General Liability
If you already have general liability insurance, you may think there’s no need for professional liability or vice versa. This is unfortunately not the case. General liability provides different coverage than professional liability. With general liability, your business will be covered when it comes to non-professional negligence. In other words, it covers bodily injury, property damage and personal or advertising injury as long as it doesn’t arise from negligence from the company.
Say your real estate company is accused of libel because one of your billboards claims the competition purposefully sells damaged houses. The competition can sue you for libel. This isn’t covered beneath professional liability, but general liability.
If your real estate company advises a client to make a deal that costs them money, professional liability steps in.
How Much Does Professional Liability Insurance Cost?
The cost of professional liability insurance varies by the size of the business, amount of coverage and the business’s industry. Professions considered high-risk by insurance companies, such as attorneys and surgeons, may pay more. Other influences on the price of professional liability include:
- Age of the Company
- Claims History
- Credit Score
Does Professional Liability Cover Directors and Officers?
Your company’s directors and officers are typically not covered under your professional liability coverage. You can purchase a separate D&O policy to cover employee actions.
What Does Professional Liability Not Cover?
Professional liability doesn’t cover property damage or employee injuries. If an employee is injured on the job, whether due to negligence or not, you will need workers compensation insurance. Workers compensation is required for most businesses and helps with medical and legal payments if an employee is injured on the job.
Professional liability also doesn’t cover defamation (covered in general liability), commercial vehicle accidents, illegal acts or intentional damage. Neither professional liability nor general liability typically cover false advertising. If your company promises something it doesn’t have or makes false promises, you’re on your own to make up for the damage it causes.