Have you ever had a client express extreme disappointment over the outcome of a project? Has your advice ever led a client down the wrong path? Can you remember a time that your services didn’t perform the way they should?
One thing all businesses have in common is the human element. And sometimes, humans make mistakes. But as innocent as a mistake can be, they can have serious implications for your business, especially if you don’t have professional liability insurance coverage.
Learn more about professional liability insurance, what it covers (and what it doesn’t), along with signs that it’s time to secure your own policy.
What is professional liability insurance coverage?
Professional liability is a type of liability coverage designed with professional trades in mind. Coverage protects against liability incurred as a result of errors and omissions while performing professional services. Policies typically apply to economic or financial losses. Examples of covered claims include the following.
Maybe you filled out a form incorrectly or did the math wrong on a spreadsheet. Either way, a simple error can cost a client money. Professional liability insurance can cover defensive fees and court costs.
For example, if an accountant enters a company’s financial transactions incorrectly, their entire budget could be thrown off. Should the company overspend as a result, they could file a lawsuit. Professional liability won’t reimburse the client per say but it will cover any attorney fees and a potential settlement.
Did you miss a deadline? A client could sue if you’re unable to deliver your services or product as promised, especially if the error costs them money.
For example, if an architectural firm is in charge of designing a new building for a chain grocery store but can’t deliver the blueprints in time, their client could lose out on a bid or have to submit additional fees to the city. They could sue the firm for financial losses.
If a business fails to meet industry standards or requirements when working with a client, they could face a professional liability claim.
For example, if a tax preparer fails to file the correct forms for a client, resulting in a penalty or fine from the IRS, the client has a right to sue for financial losses.
What does professional liability insurance coverage not cover?
No insurance policy covers every incident. Professional liability insurance doesn’t cover:
- Customer injuries
- Property damage
- Employee injuries
- Employee discrimination lawsuits
When a customer slips and falls in a coffee shop, coverage for litigation is provided by a general liability policy. If a catering company scorches a table in a home they’re working in, general liability coverage will pay for the damages.
Should an employee is injured on the job, workers’ compensation coverage will absorb the medical costs and any lost wages. Employee discrimination lawsuits are covered by employment practices liability insurance.
Do I really need professional liability insurance?
Maybe not. Not all businesses need this type of coverage. But if you could benefit from coverage and don’t carry a policy, there are certainly risks involved.
Without professional liability insurance, a lawsuit can leave a business without a way out. The financial strain can be devastating and the damage to a business’ reputation can be irreparable. Dealing with a lawsuit also leaves little time to focus on the day to day operations of a business. Combine the loss of revenue with court fees and settlements and a business can quickly find themselves declaring bankruptcy.
What industries benefit the most from professional liability insurance?
Professional liability insurance was designed with services in mind. While every business is unique in its coverage needs, the following professionals should highly consider purchasing a professional liability policy.
- Real estate brokers
- Home inspectors
- Financial advisors
- Marketing consultants
Still not sure if your business would benefit from professional liability insurance? Ask yourself the following questions.
Am I worried about lawsuits?
Do you dream about business growth or have nightmares about litigation? If you have a constant feeling of dread about potential lawsuits, give yourself more peace of mind with professional liability insurance coverage.
Am I in a high-risk business?
Some businesses are more prone to lawsuits than others. This may be because of their industry or even their location. New York City spends more on lawsuits than anywhere else in the U.S. Medical practices are also prone to lawsuits. Therefore, a medical practice in NYC would most likely need more professional liability coverage than a dog walker in Iowa.
What do I have to lose?
Are you known as the best in your industry? Is business booming? The more you have to lose, the more you should consider professional liability insurance coverage. That’s not to say that a business just starting out with a minimal reputation shouldn’t get coverage. When you’re known as the best, customers expect the best. Any little mistake can set you up for a lawsuit, especially if clients see your success as a sign of the available resources they deserve.
Professional liability insurance coverage can be the difference between a bump in the road and a catastrophe. Even if you take pride in your job and believe your services do nothing but help your clients, professional liability should be strongly considered.
Remember, it could be required, and when your business is your livelihood, you should consider all available protective measures, including professional liability insurance.