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What is Professional Liability Insurance?

If you have a client that’s upset with the quality of your company’s work or behavior of your employees, they could decide to sue you for damages. The scary thing for business owners is that going to court is expensive, even if the claims against you are unsubstantiated. The possibility of financial ruin caused by a client lawsuit underscores the importance of protecting yourself with professional liability insurance (PLI).

Professional liability insurance is a business owner’s policy that provides protective coverage for negligence or malpractice claims against you or your business. The claim can be for something you did, which you should not have done, or for something you didn’t do that you should have.

Professional liability insurance coverage is also known as errors and omissions insurance (E&O Insurance). In this article, we’ll look at what it covers, how it’s different from other types of business insurance, and whether you need it.

First, there are two types of PLI coverage:

  • Claims-made policy: This policy will have a defined date period of coverage. Any claims made or incidents that occur before or after the specified date period won’t be covered.

  • Occurrence liability policy: This policy will cover claims made during and before or after the coverage dates. This type of retroactive date policy isn’t as common, but sometimes your business may require the extra coverage provided.

What professional liability insurance covers

It covers professional errors, omissions, and negligent acts that happen during the covered policy period.

Different industries have different insurance coverage needs, so your professional liability insurance policy type will often have an industry-specific name. For example, a doctor might have medical malpractice insurance, while a plumber would have a plumber’s liability insurance.

PLI also covers claims of slander or libel, whether or not the claim is true.

Exclusions and what professional liability insurance does not cover

  • Criminal prosecution
  • Civil law legal liability
  • Cyber liability
  • Data breaches
  • Technological issues
  • Intentional errors
  • Dishonesty
  • Non-financial losses

How Does PLI Differ from General Liability Insurance?

General liability insurance (GLI) covers the legal fees, legal defense costs, and court settlements for cases brought against you for any reason, including loss of life or limb, bodily injury, loss of property, and property damage.

Is Professional Liability Insurance Mandatory?

Whether professional liability insurance is mandatory depends on your business. Many professions are required to have both PLI and GLI to work anywhere in the US.

Conversely, it might be mandatory in some states but not in others.

Even if it’s not a legal requirement, your clients will look for this type of insurance when deciding to hire you, and it’s vital to protect yourself from any liability claims. It could end up being the difference between your business flourishing or failing.

Who Needs Professional Liability Insurance?

Any business that offers a service or sells expertise needs some level of professional liability policy. The type of PLI will depend entirely on the individual company, and the insurance policy should be uniquely tailored to meet the business owner’s particular needs.

Whether your business is small or large, your professional reputation relies on good customer service and reviews. Although the cost of professional liability insurance might seem high, especially to a small business owner, a claim of negligence could cost you everything if you don’t have enough insurance coverage.

Here is a list of the most common industries and professions that often require PLI.

Healthcare providers

  • All healthcare comes with obvious risks and the likelihood of being sued is very high if you’re working in any aspect of healthcare. Medical malpractice insurance protects health care providers and medical professionals from claims made against them for things like medical negligence, inaccurate diagnosis, incorrect medical advice, or misrepresentation.
  • Nurses, doctors, surgeons, including students and residents, advanced practitioners, and anyone providing patient care (whether direct or indirect) require MMI.

Professional services

  • Any business providing professional services and expertise comes with a risk of human error. Professional liability insurance for service providers will generally be tailored to industry types. Legal action against professional mistakes will be covered under the policy limits, whether copyright infringement, inaccurate advice, or misinformation.
  • Because lawyers, teachers, accountants, architects, designers, engineers, electricians, nail technicians, hairdressers, writers, real estate agents, and any profession requiring a certain level of expertise, they all have different insurance coverage requirements. PLI policies are tailored to individual businesses.

Information technology

  • Writing code, storing and sending information, analyzing, and enhancing system efficiency come with unique business risks. Adequate protection against financial losses caused by misinformation, handling errors, or technological breakdown is vital for any IT-based business.
  • These are just a few of the types of professions which would require IT insurance:
    • System installers
    • System maintenance and connectivity services
    • Computing engineers
    • Database administrators
    • Software/application developers
    • Information security specialists

Transportation and logistics

  • Sourcing, purchasing, and transporting goods requires tailored transport and logistics insurance. If a truck can’t get to its planned destination on time for any reason, that can cause havoc, especially when food or medical deliveries must be delivered on time.
  • Transporting people also calls for extra care. A bus delayed or damaged en route could negatively affect dozens of people, while a train or airplane could affect hundreds. If each affected person decided to claim against your business, not having proper insurance coverage could easily undermine your financial stability. Improper procedures and not following protocols can lead to disastrous losses. All of these are covered with specially tailored transportation and logistics insurance.
  • Anyone working with directing the movement of goods, supplies, or people, whether in the private or public sector, military or otherwise, should protect themselves from claims of negligence and fault. This also includes people in the following sectors:
    • Food delivery
    • Medical supplies
    • Warehouse storage

Construction companies

  • Companies dealing with any aspect of construction, including initial preparation, initial construction, alteration, conversion, fitting-out, commissioning, renovation, repairing, maintenance, refurbishment, demolition, decommissioning, or dismantling of a structure, or a building site all need to protect themselves against potential claims of negligence or error.
  • Anyone working on a task at the job site needs to be sure they have adequate insurance coverage in the case of oversights or errors made on the job. These type of workers will include:
    • Construction workers
    • Inspectors
    • Surveyors
    • Installers
    • Joiners
    • Glaziers
    • Plumbers
    • Electricians
    • Tilers
    • Roofers
    • Carpenters
    • Painters and decorators
    • Project Managers

Professional Liability Insurance with Contractors Liability

For some states and some professions, professional liability insurance is mandatory. But even if it’s not a legal requirement for you to have PLI, it’s essential to protect yourself and your business against any legal claims, which means having adequate E&O Insurance.

Call Contractors Liability today and speak to an insurance agent to discuss your business insurance requirements. We can help you ensure you have adequate insurance coverage for you and your business.