Professional liability insurance

For small business owners—whether you’re a consultant, IT professional, photographer, or contractor—professional liability insurance, a type of contingent liability insurance, acts as a financial safety net. Because when your business is built on your knowledge and skills, even a small mistake can lead to a costly claim.

Even the most experienced and thorough professional service provider makes mistakes. Unfortunately, clients may not be so understanding if your error costs them considerable time or revenue.

When a dissatisfied client sues over a mistake made by your business, professional liability insurance can help pay for your legal defense, including the cost of hiring an attorney.

Specifically, this type of business insurance provides coverage for claims related to the following:

Professional liability insurance benefits a wide range of industries that provide services to clients or customers. It's designed for businesses with employees, sole proprietors, and independent contractors that make a living off of their expertise.

Some types of businesses are required to carry this coverage. Several professions that need professional liability coverage more often than others include:

Tech professional liability coverage for IT and technology professionals is commonly referred to as tech errors and omissions insurance, or tech E&O.

This policy covers lawsuits related to work mistakes, oversights, and negligence. If an error by your business causes a client’s server to crash, this coverage would help with your legal defense costs.

Tech E&O bundles errors and omissions coverage with third-party cyber insurance, which covers legal costs if a client sues your business for failing to prevent a data breach. For example, an IT consultant might face a lawsuit for recommending insecure software that leads to a breach at their client's company.

Professional liability coverage provides support for a variety of professional services that offer their expertise and knowledge as a service.

If a notary makes a documentation error or a travel agent fails to book a promised hotel, this policy will help pay for their legal costs. It can protect against claims of negligence, such as poor advice, misrepresentation, and mistakes.

Professional liability insurance for consultants offers financial compensation for lawsuits alleging detrimental advice or inaccurate projections.

For example, a management consultant promises a company that it will improve its profits by 20% by a certain date. When the date arrives, profits have failed to increase. Professional liability insurance would help cover the consultant’s legal defense costs if the client sues the consultant over its financial troubles.

Some clients may ask for proof of professional liability insurance before they agree to work with a consultant.

Professional liability insurance for healthcare providers offers the protection your healthcare business needs to continue providing its services while handling a lawsuit. In this industry, it's called medical malpractice insurance.

For instance, if a patient claims that neglect from a nurse caused bed sores, they could file a lawsuit against them. Professional liability insurance would cover legal expenses for the nurse, such as the cost of hiring an attorney.

Some states require malpractice insurance for doctors and other medical staff. More often, the facility where you work will require you to carry a certain amount of this coverage.

Professional liability insurance for accountants covers the costs of lawsuits based on data entry errors, miscalculations, lost documentation, and missed filing deadlines.

For example, if an accountant incorrectly enters a client's financial transactions into a spreadsheet and the budget falls short, the client may trace the mistake back and file a lawsuit. Professional liability insurance would cover the accountant's cost of hiring a lawyer and other related expenses.

Because this policy offers indirect financial protection for the client, some clients will require proof of insurance before they agree to work with your firm.

Professional liability insurance for architects and engineers offers financial protection against a wide range of lawsuits, such as disputes over building designs, cost overruns, mistakes, and missed deadlines.

A client could sue you for a project delay, even if it’s not your fault. If the materials you need to complete a project aren’t delivered on time, you might face a lawsuit.

Architects and engineers sometimes need this coverage to obtain a license from state regulators and to qualify for contracts.

Start by completing Insureon’s easy online application to compare free quotes from top-rated insurance providers. If your business qualifies, you can choose a policy and get covered—often in just a few minutes.

Most small businesses that rely on their professional expertise can get professional liability insurance as long as:

• Their work isn’t considered unusually high risk
• They haven’t had an excessive number of past claims

Once you meet an insurer’s basic underwriting requirements, you can get affordable professional liability coverage and typically receive your professional liability insurance certificate the same day.

This certificate serves as proof of professional liability insurance and can be shared with clients who require coverage before signing a contract or starting a project.

While professional liability insurance covers many costs related to legal action from a client, it does have a number of exclusions. For example, it only covers the cost of defending against lawsuits—it won't pay for lawsuits you initiate.

Unless your policy has prior acts coverage, it will only cover claims filed during the policy period and for incidents that occurred after you bought the policy. In this case, endorsements can fill gaps in your professional liability coverage.

Other exclusions from professional liability insurance coverage include:

Professional liability insurance helps provide indemnity if a client claims your work, advice, or services caused them financial harm. If you’re sued, your policy can help pay for attorney fees, settlements, or court judgments—up to your policy limits.

To file a claim, you’ll contact your insurance provider and provide basic details about the incident, such as what happened, when it occurred, and your policy information. Your insurer will then guide you through the claims process and defense.

Professional liability insurance is typically written as a claims-made policy. This means that in order to collect your insurance benefits, your professional liability policy must be active at two key times:

• When an alleged mistake or incident occurs
• When the claim is filed

Because of this, maintaining continuous coverage is important. If your policy lapses, you may not be covered for claims related to past work.

Many policies also include or offer prior acts coverage (also called retroactive coverage). This allows your policy to cover claims for work you completed before your current policy’s start date, as long as the work was done after the retroactive date listed on your policy.

General liability and professional liability insurance both protect against common small business liability claims, but they cover different types of lawsuits.

General liability insurance covers customer bodily injuries, customer property damage, and advertising and personal injuries. In contrast, professional liability insurance covers any legal defense costs when a client or customer suffers a financial loss due to your professional services or advice.

If you want to learn more about this policy, you can find additional information in our frequently asked questions about professional liability insurance.

If there are any other questions you have about coverage or building a risk management plan, you can also contact an Insureon agent.