Insureon Blog

What Is Malpractice (Professional Liability)?

2. April 2014 08:06

Frustrated businessman at a table pinching his forehead

Malpractice is an error made by a professional. The thinking goes that if you are a professional — someone who is skilled or who has received special training to perform a job — then your customers, clients, or patients can expect you to possess a certain level of competency in your line of work.

In other words, professionals should "know better" than to make certain mistakes while doing their job. A dentist, for example, is expected to be able to recognize a cracked tooth and recommend treatment. An architect should be able to design a new police station without structural flaws. And a lawyer is expected to provide sound legal counsel to her clients.

Because of this expectation, professionals of all stripes can be held responsible (or "liable" in legal-speak) for providing less-than stellar services. When someone outside of your business feels you have committed malpractice, they can file a claim against your business in an effort to recoup their financial loss.

Unfortunately, malpractice claims aren't always so cut and dry. Read on to learn how malpractice can affect your business — even if you never make a mistake.

Malpractice Claims: Not Just for Healthcare Providers

When most of us hear the word "malpractice," we think of healthcare professionals, probably because those cases tend to get a lot of media attention. But almost any small-business owner who provides professional services can be accused of malpractice — it just might not be called the same name.

Different industries have various ways of referring to malpractice, but the following terms mean roughly the same thing:

Luckily, insurance providers have designed Professional Liability Insurance to protect all kinds of professionals from the high cost of these service-related claims. Let's take a look at some of the situations that can lead to a Professional Liability claim:

Errors & Omissions Claims: Expensive Even When You Don't Make a Mistake

Small-business owners can be sued for Errors & Omissions / Professional Liability claims even if they perform their work without a hitch. That's because these claims often stem from factors that are largely beyond your control, including a client's…

You might be thinking that claims stemming from these issues probably wouldn't hold up in court — or even get there in the first place. But for most small-business owners, that doesn't matter. They will still need to hire a lawyer for legal counsel as soon as the formal complaint or lawsuit arrives, which can cost thousands of dollars, even if you never go to court.

In legal-speak, Professional Liability is considered a "tort liability," a term that concerns civil wrongs (as opposed to criminal wrongs). And small businesses are not safe from expensive settlements or judgments just because they may not have deep pockets. In fact, small businesses are often saddled with the majority of liability costs.

According to the U.S. Chamber Institute of Legal Reform's Tort Liability Costs for Small Businesses report, small businesses bore 81 percent of America's $105.4 billion in tort liability costs in 2008 — even though small businesses only accounted for 22 percent of the revenue. Take a peek at some of these other astonishing figures:

A Small Business Administration report from 2005 found that the cost of litigation in the cases it studied ranged from $3,000 to $150,000, though only one-third of those cases cost less than $10,000.

How to Protect Your Business from Malpractice/Professional Liability Lawsuits

Small business owners can protect their businesses from the high cost of malpractice lawsuits by adding Professional Liability Insurance to their business protection plans. To learn most about this coverage, contact one of our insurance agents.

This post is the first in an ongoing series about the cost of lawsuits for small businesses and how business owners can mitigate those costs. Stay tuned for tips on protecting the business you've built and keeping your revenue secure.

how is your business exposed


Errors & Omissions | Errors and Omissions Insurance | Malpractice Insurance | Professional Liability Insurance | Small Business Risk Management | Tips for All Small Businesses

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