When you hear “Professional Liability Insurance,” do you assume that if you’re not a licensed professional, you don’t need it? Or maybe you’ve heard it referred to as “malpractice insurance,” and improperly assume that since you don’t practice medicine or law, it doesn’t apply to you.
The fact is that most businesses that offer professional services or give advice are exposed to liability, and should have some sort of insurance coverage. The challenge with Professional Liability Insurance is that there is rarely a “one size fits all” solution, so it’s important that you read and understand the details of your particular policy to ensure that all vulnerable areas of your business are covered. A good agent can help you analyze each situation and provide assurance that a particular policy is appropriate for your needs.
What is Professional Liability Insurance?
While General Liability Insurance protects you from accidents, personal injury cases, and/or property damage claims that can occur during the regular operation of your business, Professional Liability Insurance protects you from litigation generated by allegations of professional negligence or the failure to perform professional duties.
The common interpretation of Professional Liability Insurance is that it can protect you and your company in areas not covered by General Liability Insurance, as well as from acts not caused by fraud, false advertising, problems connected with intellectual property (unless you have additional coverage), and claims related to violations of legal rights. In a nutshell: Professional Liability Insurance is a specialty coverage that protects professionals against lawsuits related to their profession.
Professional Liability Insurance offers protection if a current or former client files a lawsuit claiming that they suffered losses due to your failure to fulfill your professional obligations. Some examples might include:
- They say you didn’t meet the requirements of a contract
- They claim you didn’t complete a project
- They complain that your results were subpar
(Keep in mind, if you sell products rather than services, you may be in need of other types of business insurance.)
How It Covers Claims
Depending on the type of coverage you have, you may not have to pay anything out of pocket to protect your business from the type of claims that are covered by your particular policy. In most cases, your insurance will pay for judgments made against you, but any judgement that exceed the limit of your policy may have to come out of your business’s assets. Therefore it is imperative that you have sufficient coverage.
What are the Costs of not Having Professional Liability Insurance?
Litigation can wipe out a company’s operating budget and leave you with few options when faced with an asymmetric legal battle. Professional Liability Insurance ensures that your business will not be ravaged by a lawsuit-happy Goliath. Many professionals believe that their contracts are sufficiently airtight to avoid legal disputes or that their work is of such high quality that no client would ever be compelled to settle differences in court. Nonetheless, Professional Liability Insurance — or as it is alternatively known, Errors and Omissions Insurance — is suited to protect you in the case of human error. No one is perfect, and mistakes do happen.
This type of insurance coverage protects your company’s assets under the worse-case scenario and provides some peace of mind that frivolous or even genuine legal disputes will not encumber your firm to such a degree that they threaten the very existence of your company.
In addition, a lack of Professional Liability Insurance leaves you vulnerable to being sued by unscrupulous entities who become aware of your company’s lack of protection. It’s sad but true: some clients might believe that they can yank you around, knowing that you have limited recourse should they decide to sue you. They might even offer to stop harassing you if you forgo final payment on a substantial project.
As your business grows in size, you may start attracting corporations as clients. Many corporations that work with businesses like yours may require that you carry Professional Liability Insurance to work with them. In effect, they use this requirement to screen out companies that don’t adhere the basic tenets of professionalism. If you don’t take your business seriously, why should they? Having Professional Liability Insurance positions you to be an appealing candidate for a new project.
What Particulars Should I Look for in a Policy?
Depending on the specific wording of your policy, legal fees may or may not be covered. In other words, legal fees may reduce the amount of liability coverage you have available to pay a settlement, so a long court battle may leave you exposed financially. Make sure you understand completely what your limits and liabilities are.
Another thing to keep in mind is that some policies may require that you use legal counsel selected by the insurance company. If you currently have a strong relationship with a legal professional and feel sufficiently confident in her abilities to defend you in any potential lawsuits, look for a policy that will let you select your own legal representation.
In many cases a specific policy may grant your insurance company the ability to decide when and how to settle a claim, even over your objection. There may be a “hammer” clause in this situation that leaves you liable for attorney fees and any damages in excess of the original recommended settlement if you ignore your insurance company’s advice. If you have picked an insurance company that has substantial experience in your field, you should be able to trust that their advice comes from years of experience and feel comfortable heeding their advice when it comes to deciding a course of action.
If you are purchasing Professional Liability Insurance for the first time, pay attention to whether your coverage is “claims-made” or “occurrence-based.” A “claims-made” policy only covers claims made while the policy is active, while “occurrence-based” covers any qualifying incident occurring while the policy was in effect, no matter when the claim was made. It is important to fully understand both the benefits and limits of your policy, so that you can assess the cost versus benefit relationship of your insurance policy.
Getting the right type of insurance coverage for your business protects you in the long run. When you take care of your business, your business can take of you.
Images: “business hand pushing insurance on Flipboard Display/Shutterstock.com“
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