What is Professional Liability Insurance? A Guide for Small Business Owners

Mistakes happen. Sometimes you bring your A-game, but unfortunately it doesn’t turn out how you expected. They’re all just a part of being human.

Unfortunately, professional mistakes can become tricky, regardless of good intentions. Clients expect to get what they paid you for and aren’t necessarily going to be forgiving when your service doesn’t meet their expectations. The best-case scenario is they request a refund or reimbursement for any damage that may have been done. The worst-case scenario is they get litigious.

It’s all part of the process. But having the right business insurance coverage can help protect you in the event your services fall short (up to your policy limits). This is where professional liability insurance comes in. Let’s take a look at what professional liability is, what the insurance can cover, and whether you may need it.

What is Professional Liability Insurance?

The first thing you should know is that professional liability is a form of commercial insurance. Commercial insurance is an umbrella term used to describe a wide array of different coverages geared toward businesses.

Professional liability insurance (PL) — referred to in certain industries as errors and omissions insurance or malpractice coverage — is designed to help protect you from having to pay for damages caused by professional negligence.

Even if you’re acting with the best intentions and providing informed suggestions to your clients, there’s always a chance that your advice and services could potentially backfire. A professional liability policy could help cover you in the event a client sues you over purported negligence.

There are two types of professional liability coverage options. The first is claims-made, which is the most common type. For this type, the policy must be in effect at the time the claim is made and when any related lawsuit is filed. The second type is occurrence. This type of professional liability policy may cover legal fees for a lawsuit filed after the policy lapses, provided the policy was active at the time of the claim.

Who needs professional liability insurance?

While it’s not a universal insurance requirement, professional liability coverage may be required for certain kinds of businesses in certain states. Specifically, malpractice insurance is a form of professional liability coverage that may be required for doctors and lawyers, depending on where they practice. Check with your commercial insurance agent and local government to learn what your state typically requires of you and your business.

While it’s not always a requirement, professional liability is still a good option for businesses to have. Certain clients may want to work with you only if you have liability coverage. Professional liability insurance policies are also especially important for businesses that provide services or advice. These might include:

• Accountants
• Project managers and consultants
• Graphic designers and photographers
• Real estate agents
• Event planners

That’s just to name a few. If you’re hired to perform professional services or produce goods and products, professional liability insurance can cover you in the event your work causes damages or if your client takes legal action against you.

Is errors and omissions insurance the same as professional liability?

The two terms are sometimes used interchangeably, but there are key differences. What your policy is called will depend on the industry you work in.

Errors and omissions is generally used to describe PL coverage for accounting, IT, and real estate professionals. These professions tend to be more advice-based, so inaccuracies and failure to disclose important information are usually relevant issues.

What Does Professional Liability Insurance Cover?

If a client believes you’ve made errors at their expense, professional liability insurance may help financially cover claims or legal actions taken against you and your small business. Situations that may be covered by professional liability can include:

• Negligence, alleged or otherwise
• Advice that’s either incorrect or inaccurate
• Failure to deliver on a contract in good faith

PL insurance would generally cover legal and administrative fees resulting from these claims. A professional liability policy typically covers only economic or financial losses experienced by clients and other third parties.

Some situations that are usually not covered are:

• Bodily or physical injury
• Copyright, patent or trademark infringement
• Malicious, dishonest, criminal or illegal acts
• Property damage

How Much Does Professional Liability Insurance Cost?

As with most types of insurance, the cost of professional liability coverage depends on a variety of factors. Different businesses have different needs. This means professional liability insurance costs may be different too.

Some factors that will impact your professional liability premium include:

• Your industry or trade
• The amount of coverage you choose
• Your professional experience
• Your loss history
• Your location

The best way to get an idea of professional liability premium price points for your small business is to shop around for quotes. Once you’ve determined your budget, you can see how prices from various carriers stack up against it and choose what works best for you.

Simply Business® can help you with that. We work with leading carriers to provide a range of commercial insurance options for any budget. With our free online quote tool, you can find customized coverage options for your small business.

Whether you’re looking for PL, general liability, or workers’ compensation, we’ve got you covered.

Keep Your Bases Covered

Any small business owner knows how important it is to do right by their customers with quality products and consistent services. But we’re all human, and no one is perfect. Your good work can still ultimately lead to problems. A well-meaning mistake is still a mistake, and it can happen to the best of us.

If the work you provide goes awry, you don’t want to be left holding the bag. That’s why having the right insurance coverage matters for your small business. Consider professional liability insurance to ensure your work is covered in the event of negligence or inaccuracy. You can’t completely avoid making professional missteps with your small business. What you can do is make sure it’s protected.