Business Liability Insurance
Business Liability Insurance, or errors and omissions (E&O) insurance, protects practitioners against client claims and lawsuits resulting from their mistakes, malpractice, misrepresentation of their goods or services, and negligence allegations.
Those who offer services or advice are the target market for this type of insurance. Additionally, it’s possible that they already have general liability insurance, which excludes the circumstances above.
How Does Insurance for Professional Liability Function?
Professional liability insurance protects a company and its workers from lawsuits and other claims resulting from mistakes made while providing services or advice. More precisely, coverage is often given when a client suffers financial losses due to errors they’ve committed or poor service.
Professional liability policies cover defense expenses and settlements if your company is sued for allegedly giving bad advice, being careless, or making false representations. Businesses that offer professional services or advice are eligible for this kind of insurance.
For example, professional liability insurance might help defray incident costs and any associated legal penalties or fees if an accountant submitted incorrect papers with the IRS and their client lost money.
Policies with claims vs those with occurrences
Professional liability coverage comes in two flavors: incidence and claims-made.
You are covered for events that occur and are reported within the policy’s reporting window if you have a claims-made policy. This may include a date that allows coverage to be retroactively extended for a time frame before the policy’s commencement date. Purchasing an extension, an extended reporting period (ERP), or a tail is the sole way to prolong the reporting period for a claims-made policy. This would cover incidents between the policy’s expiration date and the retroactive date but are reported inside the ERP. Companies merging or purchasing another company may also utilize a runoff provision.
On the other hand, if the incident happened while the policy was in effect, an occurrence policy will continue to protect the rest of your life. Stated differently, a claim may be submitted up to ten years following the cancellation of the policy. However, it may still be covered if the occurrence happened during the insurance’s term.
Insurance against medical malpractice
This particular policy can shield physicians, psychologists, dentists, chemists, and other medical professionals from lawsuits alleging negligence or that their services caused bodily harm or death. Medical malpractice insurance is professional liability insurance for health care providers.
A hospital or another company may offer coverage or need to be acquired individually. It is frequently mandated by legislation.
What Is Not Covered by Professional Liability Insurance?
Incidents like • Physical accidents in a professional’s place of business are not covered by professional liability insurance. For instance, the professional liability policy wouldn’t pay for an occurrence when a client slipped and fell on a slippery floor at an engineer’s office without seeing any warning signs. This would be reported under the general liability policy of the business.
• Criminal or fraudulent activity. Professional liability insurance can pay for mistakes made by professionals; however, it will not pay for costs incurred if the professional intentionally committed fraud or other illegal acts. For instance, professional liability insurance coverage would not pay for legal fees if a doctor purposefully overcharged a patient more than they would have charged someone else for identical care.
Employee-caused mishaps. Incidents of this nature would be covered under workers’ compensation.
• Property damage. If the building’s structure, tools, and equipment sustained damage, commercial property insurance coverage would cover it.
Who Requires Insurance for Professional Liability?
Businesses that offer professional services or advice are covered by professional liability insurance. Examples of typical clients are Doctors, attorneys, contractors, architects, accountants, executives, board members, consultants, engineers, insurance agents, financial advisers, real estate agents, and religious leaders.
Depending on the state in which you reside, the standards of your profession, and any certifications you may have, professional liability insurance may be mandated by law.
For instance, in Idaho, members of the Idaho State Bar who practice private client representation must have a minimum of $100,000 in professional liability insurance per event, up to a maximum of $300,000 annually.
In practically every state, it is legally mandatory for physicians to maintain medical malpractice insurance.
Professional Liability Insurance Types
There are two varieties of insurance for professional liability:
• Policy made on claims: You only receive coverage for events that happen and are reported during the policy’s active period if you have a claims-made policy. You can choose an extended reporting period (ERP) to cover claims that may be made after the policy expires but within the chosen period and a retroactive date to extend coverage to occurrences between the chosen date and the policy’s effective date.
• Occurrence policy: If an incident happens while the policy is in effect, you are covered for it, even if you report it after it has been canceled or has expired.
Assume, for illustration purposes, that Allison, an architect, acquires an occurrence coverage in September 2019 and cancels it in June 2022. A former client of Allison’s filed a lawsuit against her in August 2022, citing a design flaw that led to an event in February 2021. Allison’s occurrence policy may still cover the 2021 incident even though she has already canceled her coverage because it was in effect at the time.
In contrast, Allison’s policy would not have paid for the February 2021 incident reported in August 2022 if she had a claims-made policy. This is because it was revealed after the policy’s June expiration. Allison would, however, be covered for the February 2021 incident when it was reported in August 2022 if her claims-made policy had a 60-day extended reporting period, provided that it was submitted within 60 days of her June cancellation date.
Professional Liability Insurance’s Advantages
A business and its employees are financially protected when it has professional liability, also known as errors and omissions (E&O) insurance, which provides a shield of protection for corporate operations.
Furthermore, clients who engage with experts covered by this kind of insurance rely on their knowledge, counsel, and services; therefore, a single mistake or omission of important information could positively impact the client and the company. Professional liability insurance can lessen losses for both parties in this situation.
Assume, for instance, that you are an insurance agent and counsel a client to obtain a specific level of coverage, which turns out to be significantly less than what they require. Your professional liability insurance can pay for your legal costs, including damages if you are found to be at fault if they decide to sue you.
Without this coverage, your company would be forced to pay for damages it is responsible for out of pocket, and if it cannot do so, your client would suffer worse consequences.
What Is the Price of Professional Liability Insurance?
Several variables, including the type of policy, the extent of coverage, the location of your firm, and prior claim history, influence the cost of professional liability insurance. Professional liability insurance premiums can differ dramatically depending on the line of work.
How to Purchase Insurance for Professional Liability
You can get help from your insurance broker, agent, or company to buy professional liability insurance. You can use a provider’s mobile app to start the application process or obtain a quote online. If that isn’t possible, giving an agent a brief call can help you receive the required information and start the buying process.