What Protections Does A Professional Liability Insurance Policy Provide?

Professional liability insurance (also known as errors and omissions) coverage is recommended for business owners. This coverage should be
in force prior to a product launch, speaking engagements, or when working with customers. An errors and omissions policy should be at the foundation of every business owner’s insurance portfolio.

Commercial or general liability policies do not provide the same coverage as a professional liability/errors and omissions insurance policy. The commercial general liability policy will not protect the business owner for situations such as contract performance disputes or other professional
liability issues. A contract “performance dispute” is one that could potentially impact professional speakers and individuals who speak to groups who could be opening them up to a lawsuit; it is akin to a doctor practicing without a malpractice insurance policy.

A professional liability policy protects the policyholder if a client holds you responsible for an error or for perceived failure that you did not perform the work promised under a contract.

Under errors and omissions, the policyholder receives coverage for legal defense costs. In today’s litigious society, this coverage may be valuable because the legal defense costs will be covered regardless of how baseless the allegations may be. The possibility of being sued by a client may not have any bearing on the quality of your work but more on the client’s perceived value, or lack thereof.

An errors and omissions/professional liability policy is issued on a “claims made” basis, which means that in order for a claim against the policyholder to be covered, the alleged error or omission must have been “covered by the policy and must have occurred on or after the  retroactive date of coverage but prior to the policy’s expiration.” Keeping the policy in force even after the engagement has ended is a protection against future claims.

This type of insurance protection may also be called Directors and Officers Liability, Employment Practices, or Group Excess Liability Insurance. All of these policies are sold as stand-alone policies and have differing coverage and exclusions. Business professionals with employees are protected under their professional liability policy as it insures not only the business owner but the employees and independent contractors as well.

What does a professional liability policy provide coverage for?:

  • Provides coverage to pay for an attorney
  • Pays reasonable costs incurred during the investigation of, or the defense of, a covered claim
  • Will pay for wages lost during the defense of the claim
  • Reimbursement for licensing board issues
  • Reimburses the policy holder for court fees and settlements reached

As with any insurance policy, there are exclusions to each policy and you will need your insurance agent to review these with you to determine
that your unique situation will be covered if a claim arises.