The complete guide to professional liability insurance

As a professional, maintaining a solid reputation and delivering quality services is crucial. However, mistakes can occur, and their consequences can be costly. That’s where professional liability insurance steps in. In this comprehensive guide, we will explore everything you need to know about professional liability insurance, including its definition, how it works, who needs it, and why it is essential. 

What is Professional Liability Insurance? 

Navigating through the insurance landscape can be confusing, with various terms and jargon. Professional liability insurance, also known as errors and omissions (E&O) insurance or malpractice insurance, is a type of insurance that safeguards professionals from financial damages resulting from their services. It provides coverage for claims of negligence, errors, omissions, or wrongful acts that may arise during the course of performing professional duties. 

Unlike general liability insurance, which primarily focuses on bodily injury and property damage caused to others, professional liability insurance goes a step further. It covers financial losses incurred by clients or third parties due to professional services, often involving advice or expertise. 

Who Needs Professional Liability Insurance? 

Professional liability insurance is necessary for any individual or business that provides services or advice to clients. This includes professionals such as lawyers, doctors, architects, engineers, hairdressers, consultants, financial advisors, technology companies, and many others. Whether it’s an IT company responsible for a network error leading to significant disruptions or a lawyer failing to deliver essential legal documents on time, professional liability insurance offers crucial financial protection against such risks. 

Types of Claims Covered by Professional Liability Insurance: 

Professional liability insurance covers a range of claims related to negligence, errors, omissions, or wrongful acts during the provision of professional services. Some common types of claims covered by professional liability insurance include: 

• Errors and omissions (E&O): This is the most common type of claim covered by professional liability insurance. It protects against claims alleging negligence or mistakes in professional services. 
• Breach of contract: This type of claim covers damages resulting from a breach of contract, such as missed deadlines or failure to deliver services as promised. 
• Misrepresentation: Damages resulting from intentional or unintentional misrepresentation are covered under this claim type. False claims or promises made to clients can lead to legal action. 
• Intellectual property infringement: This claim covers damages resulting from infringement of intellectual property rights, including copyrights, trademarks, or patents. 
• Manufacturers E&O: This specialized policy provides protection against manufacturing mistakes that could lead to issues with product performance. 
• Bodily Injury and Property Damage: Some professional liability policies also cover damages resulting from errors or mistakes in the advice provided that cause bodily injury or property damage. For instance, a pharmacy’s recommendation leading to an adverse reaction with other medications could result in a lawsuit. 

Types of Professional Liability Insurance Policies: 

There are two main types of professional liability insurance policies: claims made and occurrence-based. Most professional liability policies are written on a claims made basis, meaning they cover claims made against the insured during the policy period, regardless of when the event causing the claim occurred. 

A crucial feature of claims made policies is the need for an extended reporting period, often referred to as a “tail” policy. This coverage extension allows protection against claims arising after the policy period ends but are related to events that occurred during the coverage period. 

Determining Adequate Coverage: 

Determining the appropriate coverage for professional liability insurance can be challenging. To ensure sufficient protection for your assets and reputation, consider the following factors: 

• Type of services provided: Professions with higher risks may require more coverage than those with lower risk.
• Size of your business: The larger your business, the higher the associated risks, necessitating more coverage to protect your assets adequately.
• Potential damages: Assess the maximum financial losses that your clients could incur due to your professional services. 

Professional liability insurance plays a crucial role in a comprehensive risk management strategy for businesses and professionals. It offers protection against financial losses resulting from professional services rendered. Whether you are a lawyer, financial advisor, IT consultant, or any other professional providing advice or services to clients, professional liability insurance provides essential financial protection to mitigate risks. At Westland Insurance, we understand the complexities and costs of insurance. We are here to ensure your coverage is tailored to your needs and will be there to support you in the event of the unexpected. Reach out to us for a quote or a review of your current coverage—we’re here to help.