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Does your business need professional liability insurance?
There are many businesses that can benefit from a professional liability policy. This line of insurance is made for companies that earn revenue through selling a specialized service or expertise. It helps protect against unsatisfied clients.
Most service providers should investigate whether a professional liability insurance policy makes sense for their business. These industries can range from designers, architects, accountants, lawyers, contractors, or doctors.
In many cases, clients will require proof of insurance before signing a service contract. A professional liability insurance policy can act as an additional assurance to your clients that if part of the contract goes wrong there is insurance coverage to back it up.
Are there different types of professional liability insurance?
While professional liability insurance may go by different names, like errors and omissions insurance, they provide mostly similar coverage. The difference is within the industry in which a business is seeking coverage.
For example, professional liability is more frequently used by consultants and engineers. These industries typically guide clients and make frequent suggestions that can alter business decisions.
Errors and omissions insurance is often used by real estate agents and IT professionals. These industries are open to missing critical information that can cause clients damage down the road. Malpractice covers medical professionals (medical malpractice) or legal professionals (legal malpractice). These industries are guiding patients or clients through situations with the possibility of multiple interpretations which can leave them open to lawsuits.
What does professional liability insurance cover?
Professional liability insurance covers you when a client sues because of mistakes, errors, or under-qualified work produced by your company. The costs this policy can cover include legal defense for lawsuits related to negligence claims, undelivered services, inaccurate advice, work mistakes, and missed deadlines.
If your company doesn’t meet professional standards set within a contract, the client could sue you for negligence. A professional liability insurance policy would cover the costs for legal defense and any resulting monetary compensation.
When services are agreed upon in a contract and are undelivered, a client can bring a lawsuit against your business. These lawsuits can get even more expensive if the undelivered work results in the client losing revenue.
Consultants are frequently guiding their clients to make large financial decisions that can change the course of a business. If that advice is considered grossly inaccurate and the client brings a lawsuit, professional liability will cover the expenses.
If a mistake or oversight results in the client losing money, they might sue over lost revenue or other damages. Professional liability insurance can help cover lawsuits related to mistakes made by your business.
A missed deadline can delay larger projects and cause financial hardship for the others involved. If a client starts a lawsuit over late work, professional liability insurance can help cover litigation costs.
What does professional liability insurance NOT cover?
Professional liability insurance will not cover everything. It specifically covers lawsuits due to issues with produced services. It does not cover anything regarding intentional wrongdoing, customer injuries, employee injuries, damage to business property, employee discrimination lawsuits, vehicle damage, or data breaches.
If your business breaks the law while providing services or intentionally deceives a client, professional liability insurance will not cover the resulting damages.
Customer injuries or property damage
When a customer is injured or their property is damaged, it is not covered by your professional liability insurance. You will require a general liability insurance or business owner’s policy to cover damages associated with customer injuries or property damage.
Injuries to employees that are sustained within the course and scope of their work duties are only included in workers’ compensation insurance policies.
Damage to company property
If business-owned property or inventory is damaged, it is not covered under a professional liability insurance policy. The company will require a commercial property insurance policy.
Employee discrimination lawsuits
If an employee files a discrimination, wrongful termination, or hiring lawsuit, your company will need to have employment practices liability insurance (EPLI). A professional liability insurance policy will not cover claims due to harassment, wrongful termination, or discrimination lawsuits or settlements.
Damage to company vehicles
Any business-owned vehicle needs to be covered by a commercial auto insurance policy and personal vehicles used for business purposes require hired and non-owned auto insurance.
If a business or their clients have damage due to a cybersecurity breach, a professional liability insurance policy will not cover expenses. The company will need a cyber liability insurance policy to help with data breach expenses.
How much does professional liability insurance cost?
Just like most other business insurances, professional liability insurance costs will vary between businesses. Some factors that can affect monthly premiums are industry, years in business, geography, coverage limits, policy duration, and claims history.
The industry your business operates in and the specific contracts that you pursue can make a difference in available policy rates.
Years in business
If a business has been operating for a longer period, they’ve usually developed a track record that can be taken into consideration when determining premiums.
The locations where you operate your business will impact insurance costs. Higher population areas will often result in higher rates.
Higher coverage limits can increase monthly premiums as the insurance carrier takes on greater risk over the lifetime of the policy.
Some professional liability policies are short-term because a contract requires the policy. A continuous long-term policy could have more competitive rates.
Past claims can sometimes (not always) impact policy rates. If there have been frequent claims in a short period of time, this can change available rates.
How much professional liability insurance coverage do I need?
There is rarely a one-size-fits-all solution for insurance, though the most common coverage limit for professional liability policies is $1 million “occurrence limit” and $1 million “aggregate limit”. This means that while the policy is active, the insurance carrier will pay up to $1 million per filed claim and $1 million during the lifetime of the policy, which is typically one year.
Every business should assess what its specific requirements entail before deciding on a policy limit.
How does professional liability insurance work?
Professional liability insurance policies are often on a claims-made basis. This usually means the policy can have two timeframes that are important to understand: the retroactive date and the extended reporting period.
The retroactive date represents the date your policy goes into effect and length of coverage. It means you are covered for the incidents that happen on or after that date up until the policy expires.
The extended reporting period helps cover a claim that is filed during a period after the policy expires. The professional liability insurance policy will only cover claims that are filed within either the retroactive date or the extended reporting period.
For example, a loss can occur during the policy’s retroactive date and a claim can be filed after the policy is set to expire. If the claim is filed within the extended reporting period, it will still be covered by the policy.
Does professional liability insurance protect against frivolous lawsuits?
Yes. A client can bring a lawsuit against your business even if you were not at fault. If it is their perception that your business caused damages through services rendered, they can sue. Professional liability will cover your company’s expenses even if the lawsuit is considered frivolous or never even makes it to court.
How do I make a professional liability insurance claim?
Most carriers have online claim reporting capabilities, or you can call their toll-free claims reporting phone number. At Winooski Insurance Agency, we are available to assist you through the claim reporting process. Our clients can rest easy knowing our experienced agents are ready to help when needed.
View a list of our partner carriers and instructions on where to file a claim with each.
Why should I get a professional liability insurance policy through an independent agency?
Winooski Insurance has been an independent insurance agency for almost 40years. During this time, we have created long-term relationships with a multitude of insurance partners, which allows us to present you with a broad range of coverage options at competitive rates. We’re committed to helping you address your unique requirements.
“ The entire team at Winooski Insurance have done an outstanding job of providing insurance coverage for my company. This is not always easy, as each project has to be reviewed by Winooski Insurance to verify that we have the required coverages. ”
David Bogue, President
Professional Construction Inc.
“ I have had my company insured with Winooski insurance for more than five years now. They are a valued partner in protecting my business property, employees, and vehicles. From the top dog, Jeff Mongeon, through their entire team, they are professional and responsive. ”
David Evarts, President
“ The team at Winooski Insurance provides our companies with value added services to ensure we are protected from all angles. They have helped us solve a number of complex problems and their service is always friendly and quick. Winooski Insurance is a valued and important part of our team. ”
Robert Murano, Jr., President
Mansfield Housing Group