Businesses need insurance to protect themselves against uncontrollable elements, like weather that causes property damage, and more preventable occurrences, like workplace injuries that result from carelessness. Depending on what industry your business operates in and what products or services your company provides, you may also need to protect your business from within by covering costly employee errors.
Professional Liability Insurance Basics
Professional liability insurance, also known as errors and omissions insurance, is a type of policy aimed at protecting service providers from claims made against them by their clients. It specifically covers the policyholder from any perceived mistakes they make while carrying out their professional duties.
Protected claims can include negligence, misrepresentation, and inaccurate advice. However, it's important to note that this policy does not protect professionals from intentionally malicious actions. As a form of liability insurance, professional liability insurance pays money to the claimant, not the policyholder.
What Industries Present the Highest Risks?
Due to the nature of professional liability coverage, it's not necessary for businesses of all professions. As a rule of thumb, companies that provide a form of service should consider a professional liability policy.
In some states, attorneys must have professional liability insurance or at least disclose to their clients their insurance status. For some lines of work, such as health care, industry standards require this form of coverage. Professional liability insurance may not be regulated in other industries, but other businesses won't sign a contract with your company if you do not have coverage.
Even service-based businesses that don't need professional liability insurance to operate often opt for coverage because of the potentially devastating costs of a single error. Aside from lawyers and medical providers, professional liability insurance is highly recommended for the following types of professionals:
- Accountants– Accountants perform detail-oriented work, and a mistake can have wide-reaching consequences for clients. Common claims made against accountants include inaccurate ledgers and accounts receivable errors.
- Architects– For architects, common liability exposures include design flaws, inaccurate cost estimates, construction delays, construction defects, and contractor negligence.
- Consultants– Across industries, consultants often face claims of contract breaches, conflicting interests, inaccurate advice, and failing to properly secure the client's private information.
- Engineers– Like architects, engineers will be held liable for any mistakes in their final product if it can be determined those mistakes were reasonably avoidable.
- Insurance Brokers– Yes, even insurance agents should have errors and omissions insurance. Brokers are just as susceptible to lawsuits as these other professions. Clients are often dissatisfied with the ruling on a claim, and their main avenue for recourse is to sue the broker.
- Real Estate Agents– Since real estate agents act as intermediaries between two parties, there are twice as many chances for disputes to arise. Common complaints include improper listings, failure to disclose all information on a property, and discrepancies regarding inspections and documentation.
Aside from covering the costs of client claims and drawn-out legal battles, having professional liability insurance offers substantial benefits. For example, many insurance providers include risk management services for all their clients. These educational programs can help businesses identify their unique liabilities and take action to prevent claims.
Furthermore, having professional liability insurance gives peace of mind to both your employees and clients. When those performing a service know they have financial protection should something go array, they can fulfill their duties more confidently. On the client side, customers may be willing to spend more and ask for additional services if they know their investment is protected.
Assessing Your Exposures and Insurance Needs
As previously mentioned, not all businesses have to have professional liability insurance. If you're still on the fence about your coverage needs, it may help to make a list of all the possible exposures associated with the services you provide.
From there, do a little research—how often do businesses similar to yours face those claims? How much do businesses typically have to pay when they lose a lawsuit in those areas?
On the other hand, how much would it cost to insure your business? For accurate projections, you may want to request quotes from numerous providers. You can click here to learn more about professional liability insurance quotes for small businesses.
Digging deep into the cost of professional liability insurance compared to the financial risk of not having coverage should inform your ultimate decision.