Professional liability coverage, commonly referred to as E&O coverage, provides essential financial protection against allegations of negligence or mistakes in your work. It is especially crucial for legal firms, doctors’ practices, hair salons, consultants and technology companies.
General liability protects against claims related to bodily injury or property damage caused by your business activities; that portion is covered under professional liability coverage.
What Is Professional Liability Insurance?
Professional Liability Insurance, also referred to as errors and omissions or malpractice coverage, protects businesses that provide advice or services to customers against claims alleging their work was negligent or incomplete. It differs from commercial general liability (CGL) policies which typically cover bodily injuries as well as property damages caused by third parties.
Some states mandate it as part of a business’s license requirements, while it’s an absolute must in industries like tech services and construction where any error could lead to costly lawsuits. Many clients also stipulate it as a prerequisite of working together.
People often associate professional liability with physicians and lawyers; however, any business providing expert opinions or services could potentially face legal action for negligence or malpractice. Anyone offering advice that could potentially be misinterpreted as negligent should also consider purchasing professional liability insurance for themselves and their business.
Professional liability policies come in either claims-made or occurrence varieties, the latter offering extended reporting periods or tail coverage to allow insureds to report incidents that occurred while their policy was in force. Claims-made policies must be in effect at the time of claim submission while occurrence policies cover any event that took place during its policy period (even after it expired or was cancelled), even if its expiration or cancellation. Experts often advise purchasing both policies to cover gaps in coverage; additionally some occurrence-based policies provide extended reporting periods or tail coverage which allow insureds to report incidents that occurred while their policy was still active allowing insureds to report incidents as soon as they happened without needing to report them separately later on occurrence-based policies may provide extended reporting periods or tail coverage which allows insureds to report incidents after it expired or was cancelled to report.
Who Needs It?
Although every business owner strives to run his or her company flawlessly, mistakes do happen and when these errors financially harm clients they may require legal fees and damages awards against your business to cover legal fees or compensation awards against it. Professional liability coverage (Errors and Omissions (E&O)). can help cover legal expenses awarded against it as well as damages awarded against it.
Insurance experts argue that any business providing services or advice to clients must have this form of coverage, from architects and engineers to lawyers, accountants, financial advisers, real estate agents and even creative professionals like photographers and writers. Additionally, tailored policies exist for specific professions like design-build coverage for architects and engineers or technology errors and omissions coverage for tech service providers.
Many clients require businesses to carry this type of coverage as part of their contracting with them, as well as workers’ compensation, property and cyber liability policies.
Keep in mind that this type of insurance does not provide coverage for bodily injury or damage to third-party property caused by your professional services; to cover these risks you’ll require general business policies such as commercial general liability or property coverage. Furthermore, it doesn’t protect against claims related to fraudulent activity – for this you require either fidelity insurance or crime protection policies instead. For these reasons it is highly advised to speak to an experienced agent regarding your needs before making your purchase decision.
What Is Covered by Professional Liability Insurance?
Professional liability coverage, also referred to as errors and omissions (E&O) or professional indemnity insurance, protects your business against the financial repercussions of work mistakes. It may cover legal fees, settlements or judgments awarded against you in cases of professional negligence or breach of duty; plus costs related to managing claims such as the cost of hiring legal representation.
Dependent upon your type of work and the people it serves, whether or not a professional liability policy is essential will depend upon its importance to your business. Any small company providing specialized services or advice should consider getting one as it can protect from costly mistakes that could occur in doing business.
Dependent upon your clients’ requirements, you may require having a professional liability policy before they will contract with you. For instance, some clients require web designers carry this insurance before agreeing to work together.
Professional liability policies offer your business coverage against claims filed during their term, regardless of when they occurred or were reported. In order to receive coverage under your professional liability policy, any incidents or mistakes must have occurred and reported during your policy’s active timeframe and be reported within that timeframe. To learn more about what’s covered under a professional liability policy and its limitations, speak with an experienced insurance broker; NerdWallet Small Business can assist in this regard by offering real-time quotes from 30+ insurers with instant access to an official Certificate via CoverDash!
How Much Does Professional Liability Insurance Cost?
Professional liability, or errors and omissions (E&O), insurance can protect small businesses from unexpected claims of negligence, misinformation or mistakes made in providing services. It helps cover legal fees, settlements and the cost of defending claims – with annual premiums typically between $700 and $1000 for sole proprietorships and larger businesses paying more. Many factors affect policy prices; including your industry of operation, coverage amount required and size; those more vulnerable to allegations often have higher premiums.
Other elements that could influence your premium include your business history and location. Experience can have an effect, since insurers prefer businesses with more years in operation as insurers recognize stability and success; but previous claims could jack up premiums significantly. A great way to reduce risks and save money over time is following best practices; these could even save money!
Keep in mind that professional liability does not provide your business with protection from claims for bodily injury or property damage – something which would be covered by general liability or property/casualty policies respectively. Furthermore, professional liability does not provide coverage in cases of employee lawsuits related to wrongful termination or workplace harassment; employment practices liability policies cover such situations instead. To find the ideal level of coverage for your business needs compare real-time quotes from 30+ insurers through NerdWallet Small Business.
