What Is a Professional Liability Insurance Policy?
Professional liability insurance, commonly known as E&O (Errors & Omissions), protects businesses against civil lawsuits and negligence claims. As opposed to general liability insurance, which covers accidents, professional liability insurance covers professional mistakes. Professional liability insurance covers everyone from an electrician who miswired a light fixture to a nail technician accused of not properly cleaning products between customers, resulting in a nail infection. Professional liability insurance for small businesses is what supports you if you make this kind of mistake or even if your client thinks you did.
What’s So Important about Professional Liability Coverage?
It Covers Different Things
If you have general liability insurance, aren’t you already taken care of? it’s a bit more complicated than that. General liability insurance covers physical damage to other people and accidents that directly cause injury or property damage. Professional liability insurance, however, goes beyond accidents. Let’s say you’re a plumber installing a sink. You drop your heavy wrench, scratching some expensive antique furniture. This property damage would be covered by most general liability policies.
If, instead, you install the sink properly and a month later the customer calls and says your installation caused damage to the plumbing and now she needs to replace all the pipes in the bathroom, that’s where professional liability would come in. Another example would be a personal trainer who was asked to prepare a client for a marathon. If the client then experiences chronic pain in his legs, he could claim that it was due to poor advice from the trainer and make a claim against the trainer’s professional liability insurance.
Your Reputation is On the Line
Everybody makes mistakes, and that’s as true for general contractors as it is for nail technicians, but your potential clientele isn’t thinking of that when they’re choosing which professional to hire. That’s why it’s important not to let a single mistake take over your reputation. If a customer claims you made a mistake (whether or not you did), small business professional liability insurance coverage is what lets you move on quickly and smoothly instead of getting bogged down in attention-grabbing court cases or costly payouts. It can also save you from fighting with customers, as rather than arguing over which costs you are or aren’t willing to pay–what damage you did, or didn’t, cause, you can instead bring in your insurance company to determine what happened and what the appropriate course of action should be.
What Does Professional Liability Insurance Cover?
What can be confusing about professional liability insurance is that some claims such as copyright infringement, legal fees, advertising harm and more are also covered by your general liability policy. What is specifically and only covered by professional liability insurance is very different for each profession, since professions carry different risks. A client claiming permanent damage to their hair from bad products could be considered professional liability, but so could a cabinet being installed improperly or using the wrong cleaner and destroying a precious rug–and those are obviously very different types of damage. In some fields, professional liability insurance coverage is so specialized that it even has its own title, such as medical malpractice insurance for doctors.
What Isn’t Covered by a Professional Liability Policy?
All policies have exclusions, or types of damage they don’t cover, and that’s true for professional liability insurance as well. Here are some of the main types of claims that wouldn’t be covered under most professional liability policies:
Intentional Wrongdoing and Illegal Activity
It’s hard to imagine yourself doing anything but your best work, but sometimes people are tempted to take shortcuts. If you do that and damage results, your professional liability insurance will not cover this. For example, imagine a plumber called back 15 times by a customer whose bratty kid just can’t stop flushing his sister’s teddy bear down the toilet. But this time, the plumber has a more lucrative job to get to and doesn’t want to waste time, so he tells the adoring parents that it can’t be fixed. If he knows that it can, but he lets the problem get worse by giving bad information, professional liability won’t cover him. Similarly, if he steals the teddy bear on the way out, professional liability won’t cover the teddy bear theft.
This overlaps with the cases above. If your marketing materials contain lies about your product or your credentials and you are sued for false advertising, you will not be covered by professional liability insurance. You can’t claim to be certified if you’re not, or claim to offer services you don’t actually provide.
Accidents Covered by Other Policies
Professional liability insurance only covers professional mistakes. But accidents happen even if you do your job perfectly. Job skills and experience don’t keep people from dropping things, tripping, or getting caught in bad weather. When that kind of accident causes injury or damage to customers, passers-by, or their property, it is covered by general liability. When they happen to your employees, they’re covered by workers’ compensation insurance. If your office or studio is vandalized or damaged, it will often be covered by property insurance.
While professional liability insurance covers mistakes made by your employees, it doesn’t cover claims that they make against you as their employer. So if a former employee sues you for discrimination or wrongful termination, professional liability insurance will not help. For that, you would likely need worker’s compensation insurance.
Calculating the Average Cost for Professional Liability Insurance
Many companies sell a stand-alone professional liability policy while others sell it as part of a package along with general liability insurance. One significant advantage of buying both policies together or from the same company is that then you don’t need to worry about whether something should be covered as part of your general liability insurance or part of your professional liability insurance–you just get it covered. As an entrepreneur, you may not want to spend a lot of time figuring out which of your policies should apply, and having your general and professional liability insurance from the same company makes that easier for you in case of a claim.
The cost of professional liability insurance can vary widely depending on what’s included, limitations, and the industry. If you are in a field where each job is large and mistakes are costly, you will likely pay more than if each job you take on pays a smaller amount, and therefore the risks might be smaller. You can find out exactly how much your professional liability will cost by getting a quote that takes into account your individual needs.