Professional liability insurance is also known as errors and omissions or professional indemnity insurance. It can protect your small business from losing money on defending yourself in case of negligence or other service-related lawsuits if filed against your business.
Making your small service-related business excel in the industry can be quite a challenge in itself. You always attempt to achieve your best to satisfy your clients and make a name for yourself. But at times no matter how hard you try, things do not go according to your plan, and your client ends up suing you for lack of professionalism.
This is where companies such as Next Insurance can help. Their professional liability insurance can provide coverage to help professionals like architects, designers, accountants, and many others who might get sued by their clients for allegedly making a mistake or failing to complete their work on time.
Who Requires Professional Liability Insurance?
Professional liability insurance is needed by any small business owner who offers their expertise as services. In most states, doctors and lawyers must have professional liability insurance, although in their case it is called malpractice insurance. Here are some other kinds of business owners who would benefit from professional liability insurance:
- Engineers
- Architects or designers
- Real estate brokers
- Accountants
- IT developers
- Marketing professionals
All such kinds of professionals who own a small business and provide their expertise to clients might have to face a lawsuit related to the efficiency of their services. Even if the lawsuit has no credibility, it can still cost money to defend the business. Professional liability lawsuits can go on for a long time in court and can cost thousands of dollars in legal fees. In case a business does not have insurance, they might go into debt or go bankrupt trying to defend themselves.
What Does Professional Liability Insurance Cover?
Most of the legal claims filed under liability are negligence lawsuits. The other kinds of lawsuits that professional liability insurance can cover are:
- Misrepresentation
- Contract breach
- Violation of faith
- Lack of fair dealing
- Invasion of privacy
- Copyright infringement
In case you have professional liability insurance and your company gets sued, the insurance company would hire a lawyer on your behalf to defend your case. They would also pay for any damages in case the case goes against you. The coverage would be applicable regardless of whether you are at fault. The insurance can also extend to your business partners, employees, and even independent contractors under certain circumstances.
What Do Errors and Omissions Cover?
Here are some examples of lawsuits that can be covered under professional liability insurance:
- A web designer designs an eCommerce website for a client that fails to launch. The client files a suit for loss of revenue.
- An architect fails to complete a building for a store. The store owner sues the architect for loss of income.
- A raw material supplier fails to monitor quality and provides inferior material. The customer files a lawsuit for negligence.
- An advertising company uses an image without the photographer’s consent. The photographer sues the company for copyright infringement.
What Is Not Covered by Professional Liability Insurance?
Even though professional liability insurance can provide coverage for many varieties of claims, there are certain issues that the policy does not cover. These might be covered by other business insurance policies that you would have to purchase separately. Some of such matters are:
- Physical injury – Clients who get injured at your business premises, or by one of your employees on duty can file a lawsuit. Such lawsuits are covered under general liability insurance.
- Property damage – Damage caused to a client’s property by you or your employee while providing a service will be covered by general liability insurance.
- Intentional mistake – Mistakes by business owners due to personal grudges towards the client will not be covered.
- Illegal activities – Criminal activities against a client will not be covered under professional liability insurance.
- Misleading advertisement – Errors and Omissions does not cover for incorrect advertisement.
- Employee related claims – Injury of employees or any acts of discrimination will not be covered by professional indemnity insurance. Injuries will be covered by worker’s compensation whereas discrimination will come under employment practices liability insurance.
The cost of professional liability insurance can vary depending on several factors such as:
- Type of industry
- Location of the business
- Amount of coverage
- Size of the company
- Number and type of existing contracts
- Employee training
- Quality control
- Previous history
Remember that you can purchase several different insurances bundled together. You should speak to your insurance advisor to know more about what kinds of insurances you might need for your business.