Do I Need Professional Liability Insurance?
Professional liability insurance, also known as errors and omissions (E&O) insurance, is an important consideration for many professionals. This type of insurance provides protection against claims that your professional advice or services caused financial loss to a client. In this comprehensive guide, we’ll explore what professional liability insurance is, who needs it, its key benefits, and tips for getting adequate affordable coverage.
What is Professional Liability Insurance and Who Needs It?
Professional liability insurance provides coverage if you are sued for negligence, misrepresentations, or other wrongful acts committed in your professional capacity. For instance, an architect can be sued for design flaws, an accountant for calculation errors, or a consultant for inaccurate advice. This type of policy pays for legal defense costs and compensates clients financially harmed by your mistakes or negligence. It protects your assets if you lose a lawsuit or must settle a claim.
Though specifics vary by profession, those offering services to the public should consider professional liability coverage. Common professions that need it include:
Accountants—Accountants can be sued for miscalculations, missed deadlines, faulty tax advice, and other errors. Accountant liability insurance protects against these claims.
Consultants—Management, IT, HR, and other consultants dispense advice to clients for a fee. E&O covers damages if that advice is negligent or flawed.
Architects & Engineers—Design professionals like architects and engineers purchase professional liability insurance to protect against building flaws, defects, and resulting property damage or bodily injury.
Lawyers—Legal malpractice insurance is a must for attorneys to cover inadvertent oversights, missed deadlines, bad legal advice, and other issues.
Doctors—Medical malpractice liability insurance is crucial for physicians, surgeons, dentists, and other healthcare practitioners against medical negligence claims.
Therapists—Counselors, psychologists, therapists, social workers, and other mental health professionals need counseling malpractice insurance to defend against negligence lawsuits.
If you are unsure whether you require professional liability insurance, it is best to consult with an insurance expert and/or an attorney.
Key Benefits of Professional Liability Insurance
One of the most important benefits of having professional liability insurance is that it protects your personal and business assets in the event you are sued for negligence or errors. Without coverage, you would have to pay legal defense costs and any settlements or judgments entirely out of your own pocket. This could bankrupt your business and impact your personal finances as well, since plaintiffs often go after the personal assets of small business owners. With insurance, you can rest assured, knowing your assets are protected if you ever need to defend against a professional liability claim. Other benefits include:
Peace of Mind
Another major advantage is that insurance provides peace of mind so you can focus on your work rather than worrying about risks and lawsuits. The nature of many professions involves giving expert advice, designs, or other services that could potentially lead to an allegation of negligence down the road. Knowing you have reliable coverage in place allows you to run your business with confidence rather than practice defensively out of fear of liability claims. You don't have to waste time and mental energy dwelling on risks and worst-case scenarios.
Risk Management
Insurance also provides the benefit of risk management guidance. Reputable insurers have a wealth of experience with claims in your profession. They can share that knowledge to help policyholders run their businesses prudently and minimize liability risks. Common resources include sample contracts, protocols for documenting advice, recordkeeping recommendations, and general loss prevention techniques tailored to your occupation. Implementing these best practices reduces the likelihood of incidents in the first place.
Competitive Advantage
Having insurance may also give you a competitive edge when marketing professional services. More clients are specifically looking for vendors with professional liability coverage and may ask to see proof of insurance before hiring you. This preference makes coverage an important factor in winning new business in many professions.
Business Continuity
Lastly, insurance gives you the ability to stay in business after a covered loss. One major lawsuit could lead to substantial damages that shut down your business if you lack adequate insurance. With professional liability coverage, you have the financial means to continue operating after resolving a claim. This type of protection is crucial for safeguarding the future of your company or practice and can be part of a smart business continuity plan.
Tips for Getting the Right Professional Liability Insurance
When shopping for the optimal professional liability insurance policy, it is wise to start your search with insurance companies that specialize in your specific profession. Carriers that focus on a niche like accounting, engineering, healthcare, or legal services have extensive experience insuring those risks. They better understand the typical exposures, claims scenarios, and coverage needs for your occupation. This expertise allows them to offer industry-specific policy forms rather than generic coverage.
You'll also want to evaluate whether the available insurance limits are adequate for your profession's inherent risks. Purchase high enough limits to cover potential losses from a worst-case scenario. Depending on your assets and liability exposure, you may need to supplement the E&O policy with higher excess liability or umbrella insurance limits. An experienced agent can help determine appropriate coverage amounts based on your occupation, annual revenues, assets vulnerable in lawsuits, and other factors.
Be sure to closely review the policy's exclusions and restrictions. You need to fully understand what circumstances would not be covered. Common examples include criminal acts, contractual liability that goes beyond mere negligence, activities outside your professional expertise, claims preceding the retroactive date, faulty workmanship, and intentional acts. Also check for exclusions pertaining to specific types of clients or projects.
Since many professional liability policies are written on a claims-made basis, you need to be aware of the implications. Claims-made coverage applies to claims first made and reported within the policy period. This is distinct from occurrence-based coverage, which applies to incidents occurring during the policy term regardless of when the claim arises. With claims-made policies, timely reporting is essential and prior acts coverage is crucial.
To have seamless protection for your work history, inquire about prior acts coverage for services rendered before the policy's start date. Make sure your insurer will apply current policy limits and conditions to past work or seek evidence of continuity of coverage from preceding policies. Interrupted coverage could leave you exposed to liability on older projects.
Lastly, understand your obligations for promptly reporting incidents or circumstances that may lead to a future claim. Most claims-made policies have stringent requirements for notifying the insurer within 30 to 90 days of discovery. Late reporting can result in denial of coverage.
Professional Liability—Final Considerations
Although specifics vary among professions, those who give expert advice or services should strongly consider professional liability insurance. It manages the risk of costly negligence-related lawsuits that could otherwise sink your business. Carefully weigh factors like your profession's inherent risks and the value of your assets when deciding on appropriate policy limits and coverages. At Meyer Glaros, we can help you understand your risks and needs and create a professional liability policy that will help you meet business challenges head-on. With proper insurance, you can confidently continue providing your valuable professional services and contributing to the community.
Meyers Glaros Group has a team of professional liability insurance experts ready to help. Just reach out to us online or call us at 219.865.6447, and our team will be happy to assist you.