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What’s included in professional liability insurance?

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Professional Liability Insurance (PLI) covers legal fees and judgments that may result from lawsuits initiated by clients. Advice- and service-providing individuals and companies use this type of insurance to protect themselves against client claims of negligence, misinterpretation, or malpractice. Also known as errors & omissions (E&O) insurance or malpractice insurance, professional liability insurance helps protect businesses from bearing the full cost of defending claims made by clients, and damages awarded in civil lawsuits.

The coverage focuses on alleged error or omission in the service or product sold by the professional and financial losses caused by the policyholder’s failure to perform. This type of insurance is a good complement to general liability insurance policies, which cover claims that cause direct forms of harm. The policy will cover related legal costs, even if the professional is not found liable. Coverage does not include bodily injury, property damage, discrimination, criminal prosecution, and some forms of legal liability under civil law.

What Does Professional Liability Insurance Cover?

This insurance policy covers lawsuits arising from:

Work Mistakes and Oversights

A simple mistake on the part of a professional can result in a client losing money. For instance, a web hosting company may be sued for damages if an error in software update causes a server to crash and an e-commerce client loses money because of the downtime. Professional liability insurance can help cover legal costs and more.

Failure to Do What Was Promised

If a business promises to deliver a service and fails to do or achieve what was promised, it may be sued by a client, especially if it affects the client’s bottom line.

Accusations of Negligence

A business could face a professional liability lawsuit if accused of negligence, especially if the client believes a mistake was made or the business failed to meet industry standards.

Missed Deadlines

A missed deadline can have significant repercussions for a client. For instance, a tax preparer misses a filing deadline for a client’s tax return, which results in the client being fined by the IRS. The tax preparer is then sued to help the client recover the cost of the fine.

How Professional Liability Insurance Works

Professional liability insurance policies are usually written on a claims-made basis. As such, claims are only covered if made during the policy period. Some policies may include a retroactive date and extended reporting period. With the retroactive date, coverage is provided for incidents that occur on or after a specified date in the policy. Conversely, the extended reporting period cover claims filed after the expiration of the policy. This is usually a 30- to 60-day period, but this period can be extended to a year or more at an extra cost. The claim must stem from a covered error or omission that occurred after the retroactive date.

Businesses That Need Professional Liability Insurance

Professionals are exposed to the risk of making a mistake that may harm their clients. Clients who suffer financial damage may file a claim against a business, whether or not they’re truly at fault. The time and cost of defending a lawsuit can deal a serious blow to a business, especially for companies with fewer resources. Professional liability insurance covers professionals who have undergone extensive training to gain expertise in their field and whose work is governed by standards set by the government, their industry, or client agreements.

A professional will typically purchase this insurance if they regularly offer advice to their clients or provide professional services directly to clients. Professionals that commonly use professional liability insurance include physicians, attorneys, real estate agents, architects, consultants, accountants, engineers, counselors, designers, and marketers.

Professional Liability Insurance Exclusions

Professional liability insurance is usually tailored to a specific profession, so what is and what is not covered may differ. Generally, the insurance does not cover areas that general liability insurance would cover. Coverage does not include criminal defense or criminal liability, cyber liability, bodily injury or death of a third party, property damage, slips and falls, and personal and advertising injury. It also excludes forms of malicious, dishonest, intentional acts.

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