Irrespective of how much professionals try to satisfy their clients, there will always be an instance where a client is dissatisfied with the service rendered. As part of their legal rights, clients can sue for negligence or malpractice.
This can damage the affected professional’s career and result in significant financial loss. Even if the professional’s actions are unintentional or in line with ethical standards, the client might still win the case, because they only have to establish four elements in the court of law:
- That the professional owed them a duty of care
- That the professional breached the duty
- That the professional’s action(s) caused the accident or injury
- That they (the client) suffered damages as a result of the accident or injury.
As a professional, it is recommended that you get professional liability insurance to safeguard your personal and business assets in case of lawsuits from dissatisfied clients.
What is professional liability insurance?
Professional liability insurance (PLI), also known as professional indemnity insurance or errors and omissions (E&O) insurance, is designed to protect against claims related to professional negligence or malpractice.
For businesses that offer professional services, when employees make mistakes in the professional services provided to customers or clients, PLI covers the costs associated with defending against any resulting lawsuits and settlements or judgments.
PLI helps professionals maintain their activity and business stability.
Who needs it?
Although PLI is a type of business coverage, not everyone needs it. However, any business or individual who offers professional services or advice to clients for a fee should consider it.
Generally, professionals who may need PLI include:
- Lawyers
- Accountants
- Architects
- Engineers
- Financial advisors
- Consultants
- Counselors
- Insurance brokers
- Real estate agents
- Doctors
- Educators: Tutors and teachers
IT professionals
- Software developers
- Cybersecurity experts
- IT consultants
- Network engineers
- Database administrators
- Cloud architects
- Data scientists
- IT support specialists
Creative professionals
- Graphic designers
- Web designers
- Photographers
- Sculptors
- Writers and editors, including journalists and authors
Anyone in a business that provides professional services or advice should consider E&O insurance.
Costs and coverage
The cost of a PLI is dependent on the type of industry a professional operates in, as some industries are riskier than others.
Geographical areas of practice and experience can also affect how much you are charged. In addition, like most other policies, the number of claims you have had against you in the past will inevitably make the fee you are charged higher than what others with fewer claims against them pay.
According to some insurers, PLI, on average, costs about $61 per month, with most policies costing between $600 and $1,200 per year. The policy liability can range from $250,000 to over $2 million.
Typically, PLI coverage is usually defined in the policy. Generally, it covers three major types of damages:
- Negligence: When a professional’s actions fall below a reasonable standard of care, such as making unintentional false statements.
- Misrepresentation: This is when a professional makes an intentional or reckless false statement of a material fact, which in turn affects the decision of the client.
- Violation of good faith and fair dealing: When a professional is not honest in their intentions or willingness to abide by an agreement with a client.
It is worth noting that coverage will normally not include criminal prosecution. Some of the liabilities typically covered by PLI include:
- Errors, mistakes, or negligence in the delivery of professional services
- Undelivered services
- Breach of contract
- Copyright infringement
- Missed deadlines
- Negligence or failure to meet standards
- Defense expenses
How does it work?
There are two major types of PLI: claims-made and occurrence.
Claims-made policies mean that the coverage only applies to claims filed during the policy period. On the other hand, occurrence covers any qualified claim resulting from an incident that occurs during the active period of the policy, even long after it has expired.
Depending on the type of PLI you purchase, the policy will cover the legal defense costs associated with a lawsuit, even if the claim is ultimately unsuccessful.
If the professional is found liable, the insurance company may pay out a settlement to the claimant within the policy limits. Many policies include limits of $1 million for a single claim or per occurrence.
Additionally, these policies often have a $1 million aggregate limit, the total amount the policy will pay out over its lifetime, regardless of the number of claims.
Things to consider when getting errors and omissions insurance
Errors and omissions insurance is great for most professionals; however, if you fail to understand certain things, you might choose the wrong policy for your profession, which will not only make you lose money but also expose you to the risk you are trying to protect yourself against.
Choosing the appropriate insurance
Different industries and professional fields have different names for the professional liability insurance that covers them. For instance, in the medical community, PLI is known as medical malpractice insurance, while in some other industries, it is known as professional indemnity insurance.
Conduct proper research before getting a policy for your business.
Budget
Generally, the cost of E&O insurance is minute compared to the policy limits. Meanwhile, based on budget, you may want to go for a cheaper policy instead of an expensive package offered by another company.
Cheaper does not always mean the best. Read the policy wordings carefully to choose the best for your company and money’s worth.
Group coverage
Companies offering professional services usually provide coverage for their employees. However, it is recommended that you find out the extent to which you as an individual are covered. You may want to consider purchasing your own coverage for optimal protection against any lawsuit that might affect you.
Future growth
Read your policy carefully to understand the coverage, exclusions, and limitations. Ask your insurance agent questions.
Most importantly, ensure your policy covers your current and potential future needs. Review it annually to ensure it meets your needs and make necessary adjustments.
