With so many things vying for a small-business owner's time — contracts, supply lines, marketing, employment issues — business insurance sometimes takes a back seat. But it's important to think about the risks your business faces lest you have one more time-consuming and costly task to wrangle. In fact, a single lawsuit can completely derail your company and drain its cash reserves.
That's why Professional Liability Insurance (also called Errors & Omissions Insurance or Malpractice Insurance) is so important. It financially shields you from lawsuits alleging your business provided negligent or incomplete work. But there are other perks, too. Read on to learn more.
Does Your Business Really Need Professional Liability Insurance?
Are you willing to bet the future of your company that you (or your employees) will never make a mistake, or that a client will never be dissatisfied with the results of your work?
- Professional Liability Insurance protects against these possibilities by covering your legal costs if you are sued for alleged errors or oversights. Even simple circumstances can lead to devastating lawsuits:
- Paperwork errors. A lost document, imprecise contract, or incorrect order forms can result in lost business for your clients. In turn, they could sue you to recoup those losses.
Advice. If you're in the business of giving recommendations, a client could blame your advice for causing their own business failures or bad luck.
- Miscommunications. Every phone call, advertisement, or email influences client expectations. Whether an employee misrepresents your services or a client misunderstands a passing comment, you could be on the hook if your client is disappointed with the results you deliver.
These and other situations have led to actual Professional Liability lawsuits. For real-life examples, see "Professional Liability Lawsuit Examples: Lessons for Small-Business Owners."
How Professional Liability Insurance Works
Let's say a disgruntled client does decide to sue you — even though you're not at fault. If you have Professional Liability Insurance, you're protected in two important ways:
- Your policy will cover your legal defense costs. Legal expenses add up quickly — lawsuits usually cost anywhere from $5,000 to over $100,000, depending on duration, complexity, and other factors. They even cost a bundle when the claim is ultimately meritless.
- Your policy may reduce the hassle of a lawsuit. If your Professional Liability Insurance includes a "right and duty to defend" clause, your insurer is obligated to handle the nitty-gritty details of the lawsuit. That includes selecting the lawyer and dealing with the day-to-day administration of the case. This allows you to focus on what you do best — running your business.
Professional Liability Insurance Is Required in Certain Circumstances
Because Professional Liability Insurance protects you and your clients in case you make an error on the job, there are certain situations that specifically demand the coverage. For instance, a policy might be required by…
- Contracts you have with clients.
- Potential clients of a certain size or type.
- Industry rules and regulations.
For more information, read "Is Your Small Business Required to Carry Professional Liability Insurance?"
When Is the Best Time to Get Professional Liability Coverage
Professional Liability is a "claims-made" policy, which means timing is important. If the incident leading to a claim against your business already happened, it may be too late. That's because you must meet two conditions to receive claims-made coverage benefits:
- Your policy must be in place before the circumstance that leads to you getting sued.
- That same policy must be active when the actual claim is filed.
If you think you might be exposed or have let a policy lapse in the past, talk to an insurance agent about your options as soon as possible.
The Application Process for Professional Liability Insurance
Professional Liability Insurance is tailored to your specific business, so the application for a quote will ask you several questions about your operations. Read "How to Apply for Professional Liability Insurance" to learn what to expect during the application process and "A Guide to Professional Liability Quotes and Estimates for Small Businesses" after you've received your insurance quotes.
How to Ensure Your Business Gets Adequate Professional Liability Insurance
Ready to start protecting your small business? Simply fill out an online insurance application today. One of our small business insurance agents will tailor your quotes (from multiple top-rated providers) to your business's specific needs. If you see something you like, we can take you from quote to bind in 24 hours or less.