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What Is Professional Liability Insurance

Business owners and professionals have myriad insurance concerns; one of the biggest is typically professional liability insurance. This type of coverage can protect a professional or a business owner from liability for damages resulting in errors, omissions, or honest mistakes that result in damages or financial losses for customers and clients. Professional liability insurance can not only cover the cost of legal fees for defending against such a claim, it can also cover the final settlement or award.

How Does Professional Liability Insurance Work?

Professional liability insurance functions similarly to any other type of liability insurance. The policyholder pays a monthly premium to maintain coverage for events covered within the scope of a policy. While some people mistakenly assume that only professionals like lawyers and doctors require professional liability insurance coverage, other professionals like automotive mechanics, beauticians, and computer repair technicians should also carry this type of insurance coverage.

Professional liability insurance coverage may come into play any time a service-providing professional faces an accusation of wrongdoing from a client or customer. Some of the issues that could potentially lead to a professional liability insurance claim include:

  • A customer claims the professional did not perform work the customer paid to have done.
  • A customer or client claims that the professional performed inferior work or did not meet the client’s reasonable expectations.
  • The professional violated the terms of a contract between the professional and the claimant.
  • The professional was negligent in providing service to the client or customer.
  • The professional did not perform the work the customer or client intended to have performed or that the two parties agreed upon.
  • The professional made a mistake or omission in performing work for the client that resulted in some type of actual harm to the client.

Many possible scenarios could lead to a professional liability insurance claim. A bike courier service that failed to deliver crucial documents on time for a client could face legal action from the client if the lateness caused economic losses or other harm. If a financial advisor gives negligent or bad advice to a client, the client could suffer disastrous financial losses from poor investments. If an auto mechanic fails to properly install a new part on a vehicle, it could cause the vehicle to suffer serious damage, leading to even more repairs.

Understanding Your Professional Liability Coverage

Some professionals and businesses will need to maintain professional liability insurance coverage to remain in business or keep practicing. Others may require it while working for certain companies. It’s essential for all professional liability insurance policyholders to know the terms of their policies, the scope of coverage available in a policy, and when to file a claim.

A professional liability insurance policy may cover a wide range of issues, from giving faulty advice to performing work in bad faith or even honest mistakes caused by human error. Ultimately, a professional liability insurance policy can only apply to issues caused by errors or omissions, not by intentional acts a policyholder commits.

For example, a financial advisor recommends a particular investment to a client but did not properly research it. This is an example of negligence in providing a service and the resulting damages may fall under the advisor’s professional liability coverage. If the financial advisor lied to a client to secure a heavy commission, this is an intentional tort and professional liability insurance would not offer any coverage.

Professional liability insurance also covers economic losses, but it does not cover bodily injury, death, or property damages. These claims would pertain to a general liability insurance policy, if available. Different types of professionals will need different types of insurance coverage. If you are a business owner or professional in need of a professional liability insurance policy, it may be worth the time to talk to an attorney about your potential liabilities and what type of policy you should purchase.