Client contracts often require professional liability insurance. Businesses in certain industries are also required to have this coverage.
Professional liability insurance, sometimes known as errors and omissions insurance (E&O) or professional indemnity insurance, protects your business from the risks of a lawsuit over professional mistakes or oversights. Clients, governments, and professional licensing organizations all understand that these risks are higher for certain types of business.
Depending on your industry or clients, you might be required to carry E&O coverage to comply with laws or industry standards. For example:
Federal Acquisition Regulations require businesses working on government projects to carry insurance, including professional liability coverage, for "the perils to which the contractor is exposed." The top five industries awarded government contracts include:
Bottom line – any business that provides services under a federal contract probably needs to carry a professional liability insurance policy.
Medical malpractice insurance is a professional liability policy for medical professionals such as doctors, nurses, home healthcare providers, and physical therapists. These professionals are often required to carry a minimum amount of coverage by state law, licensing agencies, credentialing authorities, health insurance plans, and hospitals or other healthcare facilities.
Some states require insurance agents to carry professional liability insurance, or risk have their license suspended or revoked. For example, Rhode Island requires that insurance agents have coverage with a minimum $500,000 aggregate policy limit in place.
Professionals in many other industries may need to carry E&O insurance to comply with regulations or licensing requirements in their area. Speak with an attorney or insurance agent to learn whether you may be required to carry coverage.
Professional liability insurance is an important part of any risk management strategy – especially if you provide a service or make a living off your expertise. It’s the only business insurance that protects you from lawsuits over your job performance.
While a general liability insurance policy covers legal actions over client injuries or property damage as well as copyright infringement, professional liability insurance covers lawsuits claiming your negligence or mistake caused a client’s financial loss – regardless of fault.
For example, a design error could lead to a costly mishap for an architect. A business consultant could be blamed if a client misses their earnings target. A general contractor could be sued for missing a deadline. In all of these cases, professional liability insurance will help cover defense costs, legal fees, and any judgments or settlements related to lawsuits over a mistake or negligent act.
It’s important to maintain continuous coverage to make sure you’re protected from client lawsuits. Professional liability insurance operates on a claims-made basis, which means you're only covered for incidents and claims that happen while your policy is active.
Your retroactive date is how far back a loss can occur and still be a covered claim under your policy. The best business practice is to get professional liability insurance as soon as you can and maintain the same policy for the life of your business. This reduces your costs and ensures you stay protected.
Professional liability insurance protects your business if a client complaint turns into a costly lawsuit, but it has other benefits too:
Clients may require your business to produce a certificate of insurance as proof of professional liability insurance coverage before they’ll hire you. This coverage reassures clients that you’ll be able to pay for any harm you may cause.
Carrying professional liability insurance also helps you attract and retain clients. Even if this coverage isn’t required by a client, it demonstrates that you’re trustworthy and dependable and can help you get a leg up on the competition.
Any business that offers specialized services or expert advice can get sued over a mistake or an oversight. As these professional liability lawsuit examples illustrate, you could easily face an expensive lawsuit – even if you’re not at fault.
Professional liability insurance provides critical protection from steep legal defense costs and costly judgments or settlements. Without it, your business could be severely damaged. For sole proprietors, it could even put your personal assets at risk.
Some small business owners might try to trim their budgets by putting off purchasing professional liability coverage, or canceling their policy when projects seem less risky.
This could be a costly mistake for a couple of reasons:
Complete Insureon’s easy online application today to compare professional liability insurance quotes from top-rated U.S. insurers. Once you find the right policy for your small business, you can begin coverage in less than 24 hours.