Who Needs Professional Liability Insurance?

Your policyholders who run businesses will undoubtedly experience unexpected costs from time to time. The right insurance coverage level and types of insurance can help their company minimize and manage any unplanned expenses.

While some insurance types are mandatory, others are optional but still critical. Liability insurance is an example of insurance a business might not have to buy, but that’s good to have. Learn more about the types of liability insurance your policyholders may need, what they cover and why professionals need this coverage.

What Is Liability Insurance?

Liability insurance protects against claims of injury or damage. For example, if your policyholder owns a store and a shopper trips over a broken tile on the floor, liability insurance provides financial protection if the shopper sues your policyholder. Liability insurance typically falls into several categories:

• General: General liability insurance protects businesses against claims that can come up due to physical injury to a person, property damage, or libel and slander.
• Professional: Professional liability insurance protects businesses that provide professional services against financial claims that come up as a result of those services. For example, if a customer sues because they think a policyholder has been negligent, professional liability insurance would cover your client.
• Product: Product liability insurance offers financial protection against claims that a company’s product causes physical harm to someone. For example, if a shipment of products is defective and burns or cuts people, product liability insurance would cover the costs of being sued by customers.
• Directors and officers: Directors and officers insurance, or D&O insurance, provides liability protection for a company’s officers and directors against acts of negligence.
• Employment practices: Employment practices insurance is a type of liability insurance covering liabilities related to employment that aren’t on-the-job injuries. Some of the things it covers may include sexual harassment suits and wrongful termination suits.

For the most part, any business should purchase a general liability insurance coverage policy. Only certain types of businesses need either professional liability insurance or product liability insurance.

It’s worth noting that liability insurance is different from other insurance coverage types in one key way. If a company purchases a property insurance policy and some part of the company’s property is damaged, such as by fire or storm, the insurance company may pay the policyholder to fix the damage.

In the case of liability insurance, the insurance company pays the person or company that’s filing a claim against your policyholder. If someone sues your policyholder’s company after they’ve tripped and fallen, the insurance company may pay the injured person for the amount of damages. Liability coverage can also pay for the cost of a company’s legal fees related to a lawsuit.

What Does Professional Liability Insurance Cover?

Professional liability insurance is designed to protect companies from lawsuits that could ruin them financially. In that way, it shares some similarities with general liability insurance coverage. Both minimize the financial damage that can come about due to a lawsuit. In some cases, a client might require a professional to have professional liability coverage or general liability coverage if something goes wrong in their interactions and professional relationship. Companies may also purchase professional liability coverage for their employees.

The biggest difference between professional liability insurance and other forms of liability insurance is the type of things it covers. While general liability insurance usually covers costs associated with physical injury or damage, professional liability insurance covers costs that arise from the service your policyholders offer or the advice they give a client. Some examples of the coverage professional liability insurance may provide includes:

• Bad advice: An investment advisor recommends that their client purchase a certain number of Stock A shares. Shortly after the purchase, Stock A’s company tanks, and the client loses all their investment. Although there’s no way the advisor could have predicted with certainty that the company would go under, the client can still sue. Professional liability insurance can cover the legal costs of the advisor and pay for any settlements or awards if the court ruled in the client’s favor.
• Negligence: An accountant submits a tax return for a client that contains numerous mathematical errors. The tax agency comes after the client and refuses to give them a refund. The client can then sue the accountant for negligence, as the accountant failed to do their job and submit an error-free tax return. Another example of negligence can be if a restaurant orders printed menus and the menus are produced with a typo.
• Delays: A customer orders a furniture set from a store. The store ships the set, but the delivery company takes much longer than expected to deliver it to the customer. The customer ultimately cancels their order or demands a refund. The store can then sue the delivery company for a delay that leads to a loss of a customer.
• Errors: A surgeon performs surgery but gets the charts mixed up and performs heart surgery on a patient who was scheduled for a nose job. The patient can sue the surgeon for the error, and a professional liability policy may cover the costs of the lawsuit and any damages awarded to the patient.
• Loss or theft of service: A couple hires a professional photographer to take pictures of their wedding day. The photographer takes the photos, and then loses the flash drive that contains the files before the couple can download them. If the couple has paid for the photos already, they can sue the photographer for the loss.

What Doesn’t Professional Liability Insurance Cover?

Professional liability insurance protects against claims that have to do with the service your policyholder offers. If a customer sues your policyholder because they experienced a financial loss due to something the policyholder provided, professional liability insurance coverage will usually kick in. Professional liability insurance won’t offer coverage against the following:

• Bodily injury to clients or customers: If a customer trips and falls while in a policyholder’s store or office, general liability insurance coverage may protect the business, not professional liability insurance.
• Property damage: If a client lets a business owner drive their car or use their computer and the business owner gets into an accident or breaks the computer, professional liability insurance won’t cover the damages.
• Data breaches: If you experience a data breach and your company loses access to information about your customers, professional liability insurance usually won’t cover the damages. One exception might be if you misplace a hard drive or leave passwords lying around in plain view, and they get stolen.

What Types of Professional Liability Insurance Are Available?

Depending on the type of company your policyholder owns or the professional services they offer, they might need a specialized form of professional liability insurance. Some of the types available include:

1. Medical Malpractice Insurance

Even the best doctors can be sued for medical malpractice, and the majority do get sued at least once during their careers. Medical malpractice insurance is a specialized form of professional liability insurance that protects physicians against the costs of malpractice lawsuits. Many states require licensed and practicing physicians to carry at least some level of malpractice insurance coverage.

Malpractice insurance pays for the legal fees associated with a lawsuit, such as attorney’s fees, arbitration costs and settlement costs. If a physician is found to be responsible for malpractice and the patient wins the suit, the insurance coverage also pays for the damages.

Who pays for the insurance depends on a policyholder’s employment situation. If they are in a private practice, they might purchase a policy that protects themselves and others who work at the practice. Or they might purchase a policy that only covers themselves. If a policyholder works in a hospital or for a large health care provider, their employer might purchase a policy for them.

2. Errors and Omissions Insurance

Errors and omissions insurance is another name for professional liability insurance. It’s the type of policy an attorney, accountant or another professional might purchase when they need professional liability coverage.

Many types of errors and omissions policies are claims-made, meaning that individuals need to have the policy in effect when the issue occurs and the person sues. An occurrence policy covers claims that took place when a policyholder had coverage, even if a person sues after the professional’s policy has expired. Retired professionals often purchase occurrence policies to protect themselves in case a client sues years after the fact.

It’s common for an errors and omissions policy to have a deductible, and the deductible can be up to $25,000, depending on the policy. Some businesses need to purchase more extensive coverage based on the company’s size and the amount of professional risk involved.

3. Directors and Officers Insurance

Directors and officers insurance provides liability protection to individuals who are serving on the board of directors. The coverage is designed to provide personal protection to directors and officers rather than broad, companywide protection. The policy can provide coverage to officers and directors at private companies, public companies and non-profit organizations.

Who Should Get Professional Liability Insurance?

Owners of businesses that offer professional services need professional liability insurance. Depending on the industry, professional liability insurance might be legally required. For example, some states require doctors to have medical malpractice insurance, and lawyers are usually required to have legal malpractice coverage.

Professionals who should consider professional liability insurance coverage include:

• Accountants: Accountants are responsible for ensuring customers’ books are accurate and tax returns are filed correctly. Professional liability insurance can protect them if they make a mistake in filing or are negligent in keeping a client’s financial records.
• Architects and developers: Professional liability coverage can protect an architect if a building design has an issue with it and someone sues.
• Attorneys: Attorneys need legal malpractice coverage to protect them against lawsuits
• Consultants: A management consultant might need professional liability coverage if they offer advice to a client, the client isn’t happy with the results and the client sues.
• Designers: A customer might sue a designer if there is a flaw in a design.
• Engineers: An engineering mistake can also lead to a lawsuit, requiring professional liability insurance coverage.
• Financial advisors: A financial advisor might need protection if a piece of investment advice doesn’t work out the way their client hoped.
• Insurance agents: A client could sue an insurance agent if they aren’t happy with the policy they purchased.
• Physicians: Most physicians need to have malpractice insurance coverage if they want to remain in practice.
• Real estate agents: A real estate agent can benefit from professional liability insurance coverage if a deal goes bad and a client sues.

How Much Coverage Do Policyholders Need?

Several factors influence the amount of professional liability coverage your policyholders need, including company size and the risk of being sued. The type of service a policyholder provides also influences their coverage needs.

Your clients might also have minimum coverage requirements, depending on the type of industry they are in and the amount of risk they face. For example, some companies might require a lawyer to have $1 million in professional liability coverage before agreeing to work with the attorney. It’s usually better for a policyholder to have more coverage than they anticipate needing, rather than be underinsured.

How to Buy Professional Liability Insurance

The first step toward buying a professional liability insurance policy is to consider the risk a company faces. Some lawsuits are more likely to happen to certain professionals than others. From there, consider the average cost of a lawsuit, including the cost of damages if the other party wins.

As an insurance agent, your clients will look to you for assistance with their coverage type and amount. With your knowledge and experience, you may also be able to match your clients with other business insurance, helping them bundle policies together to save money. Help them review each policy carefully before they commit. Make sure you both understand how much protection it provides, who it covers and the cost. If there’s a deductible, check to see if it’s an annual deductible or a deductible for each claim.

Get a Quote From Prime Insurance Company Today

Those who provide professional services likely need professional liability insurance. Prime Insurance Company offers customized professional liability insurance policies for professionals in various industries, including health care, legal, financial services and law enforcement. Prime Insurance does not write workers compensation, life, or health insurance policies. To learn more, apply to get a quote today.

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Authored by Rick J. Lindsey, CEO, President, and Chairman of Prime Insurance Company

Rick J. Lindsey hails from Salt Lake City, Utah. He began working in the mailroom of his father’s Salt Lake City insurance firm, getting his introduction to the business that became his lifelong career. Lindsey quickly rose through the ranks while working in nearly every imaginable insurance industry job. As an entrepreneur, specialty lines underwriter, claims specialist, risk manager, and a licensed surplus lines broker, Rick Lindsey is highly skilled in all levels of leadership and execution. As he progressed on his career path, Rick discovered an urgent need for insurers willing to write policies for high-risk individuals and businesses. He was frequently frustrated that he could not provide the liability protection these entities desperately needed to safeguard their assets. He also formed the belief that insurance companies acted too quickly to settle frivolous claims. Lindsey decided to try a different approach. He started an insurance company and became the newly formed entity’s CEO. This opportunity has enabled Rick to fill a void in the market and provide a valuable service to businesses, individuals, and insurance agents who write high-risk business. Prime Insurance also specializes in helping individuals and businesses who live a lifestyle or participate in activities that make them difficult for traditional carriers to insure. If you’ve been denied, non-renewed, or canceled coverage, don’t give up quite yet. Chances are Prime Insurance can help.