Mistakes happen. While you would expect them to happen to business owners who are careless, they can also happen to business owners who are experts, perfectionists and conscientious service professionals – just like you. If a client thinks your mistake caused a financial loss – even if you didn’t do anything wrong – they can sue you.
Professional liability insurance, which is also called errors and omissions (E&O) or malpractice insurance (for legal and health professionals), can help protect you and your business against negligence claims like these. It protects advice- and service-providing businesses against allegations of negligence, misrepresentation and inaccurate advice by a client. A customer could sue you for doing something you shouldn’t have … or for not doing something you should have, and your professional liability insurance policy may cover damages and legal costs that you might be ordered to pay as a result – even if you haven’t made a mistake. Without it, you’d have to pay expensive legal defense costs and related settlements out of pocket.
Common errors that expose business owners to professional liability lawsuits include misunderstandings like differing expectations, clerical errors resulting in delays, failure to disclose (such as inadequate communication of instructions) resulting in financial damages, or missed deadlines that interrupt business workflows. Claims like these are not covered by a general liability insurance policy that addresses more direct forms of harm.
Do I need it?
Professional liability insurance protects you from the risks you face in delivering your professional services. If you regularly give advice to clients and/or provide a service, then you should consider professional liability insurance. There may also be clients or vendors who require professional liability insurance, especially if they have larger operations or government projects.
It is required by law for some professions (e.g., medical, legal) but not all, and is strongly recommended for business owners who routinely meet the above criteria such as accountants, consultants, graphic designers, photographers, real estate agents and many more.
General liability policies cover direct harm such as bodily or personal injury, property damage or advertising injury claims, but companies providing professional services are also at risk for claims of indirect harm such as negligence, misrepresentation, violation of good faith and fair dealing, and inaccurate advice. Many services companies buy both general liability and professional liability policies to ensure they are fully protected.
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Professional Liability Insurance Covers Claims of:
- Negligence or alleged negligence
- Providing incorrect or inaccurate advice
- Claims arising from services provided in the past
Professional Liability Insurance Does Not Cover:
- Bodily injury or property damage
- Work-related injuries or illnesses
- Cost of damaged equipment
- Medical costs of injuries to third parties
- Intentional mistakes or fraud
- Employment matters
- False advertising
- Failure to protect personally identifiable information
- Data breach