If you are a professional, you may be required by state law or your licensing agency to carry a professional liability insurance policy. This type of insurance is also sometimes known as errors and omissions (“E&O”) or malpractice insurance, depending on your occupation. As a general rule of thumb, if you are in the business of giving advice or providing a professional service to clients, then you should probably have professional liability insurance coverage. It typically covers you for things that your general liability insurance policy does not cover like your errors and omissions, mistakes, negligent acts, bad advice, and misrepresentations that end up harming your client or a third party.
Professional liability insurance can also help cover the costs of defending a lawsuit if a client or a third party sues you or your company for something related to your professional practice. The costs of defending a lawsuit can be very expensive, even before a judgment is entered. If you have professional liability insurance, your policy will help pay for attorney’s fees and costs related to the lawsuit, provided you are sued for something that is covered under your policy. Your policy will cover you even if the lawsuit proves to be frivolous or if you end up settling the claim.
Professional liability insurance usually does not cover you for criminal or fraudulent actions and conduct, bodily injury to your clients, false advertising, and matters relating to intellectual property. Some of these things, such as bodily injury, may be covered under your general liability policy.
While just about any professional can benefit from this type of insurance, it is most common among lawyers, health care providers, accountants, insurance agents, real estate agents, television and film producers, news-gathering professionals, broadcasters, construction workers, architects, engineers, brokers, and consultants. A client may require you to carry professional liability insurance. If this is the case, you don’t want to lose out on a lucrative business opportunity just because you do not have coverage. Knowing you have this coverage may also make clients more comfortable about doing business with you.
The price of a professional liability policy can vary greatly. The more coverage you have, the more expensive the policy will be. Policy limits are commonly sold in increments of one million dollars per claim with deductibles as low as one thousand dollars. If you need coverage that exceeds your carrier’s standard policy limits, you can usually purchase the additional coverage under an umbrella policy. One factor that will likely contribute to the total cost of your premium is whether you have had claims made on a professional liability policy in the past.
Most professional liability insurance policies are sold on a “claims-made” basis. This means that coverage only extends to claims that occurred and were made and reported during the period of your policy. Some companies will sell you a policy with a retroactive effective date to cover claims that you may be unaware of at the time you purchase your policy. When your policy expires, it is a good idea to purchase extended, or tail end, coverage. This coverage will cover you for claims that occurred while your policy was in force, but are not reported until after your policy has expired. Extended coverage does not cover you for future claims or claims that occur after the expiration of your policy. Extended coverage is ideal for professionals who have retired and are no longer providing professional advice or services and want the peace of mind in knowing that they are covered if a claim is made for advice or services they provided in the past.
Some insurance carriers will customize professional liability insurance coverage for you. If that is something you might be interested in, be sure to ask your insurance agent about it.
Keep in mind that professional liability insurance policies vary in coverage, endorsements, and exclusions. If you have questions about coverage under your own policy, or are unsure whether you need professional liability insurance, talk to a licensed professional such as an attorney or your insurance agent.