Professional liability insurance

is designed to cover Principals that provide professional services. It protects them against claims from clients who suffer a financial loss due to errors or negligence that are caused by actions or in actions of the Principal. It‘s commonly referred to as Professional Liability Insurance or Errors & Omissions Insurance (Commonly referred to as E&O Insurance.). One of the greatest benefits of professional liability policies is that they cover legal defense costs and compensation awarded to the plaintiff. The costs of legal defense can be astronomical, and even if it is proven later that you did not make a mistake, if you did not have Professional Liability Insurance Coverage you will still be stuck with those legal bills.

Professional liability coverage is most commonly used by those who practice legal and medical professions. However, other professionals can also benefit from this particular policy, which includes but are not limited to:

  • Consultants– These people are best defined as financial or industry professionals, such as IT consultants and real estate agents, who guide clients in managing their finances or business assets. Since the client trusts your judgment and expertise, they are in their right to sue you for damages, should they suffer a loss after following your advice to the letter.
  • Fitness Professionals– Every personal trainer has a fitness guide they swear by and sell to their clients. Should the client not achieve their desired results after sticking to your fitness advice, or if they suffer bodily injury due to your regimen, a lawsuit could be looming.
  • Designers and creatives – Graphic designers and software developers address a variety of business needs in the tech sector. If your service doesn’t provide the desired value by your client, they can sue for financial losses incurred. Let’s say that you created a website or created a logo that caused your client to be charged with copyright infringement, they will surely pass this cost to you or file a negligence claim against you for the damages incurred by your intellectual property plagiarism.
  • Freelancers– As a freelancer, you work as an independent contractor for different clients, remotely or otherwise. If  your client suffers a financial loss in the course of your service offering, you should be prepared for a lawsuit – especially if amicable attempts to resolve the issue fail.
  • Engineers, Architects, and Developers– If a project does not achieve the standards of the design provided, or if other issues arise due to negligence on your part, you had better be prepared with an indemnity cover.

It is best to be prepared in advance for situations like these, even if you think you may not necessarily need the coverage. As a service provider or consultant, your services may be what clients buy, but your word is what they’re sold. If they are not satisfied by the end results, Professional Liability Insurance Coverage allows you to be protected in case of any legal action taken by the client.


What is covered by professional liability insurance coverage?

The following outlines the scope of coverage, including exemptions. The common claims covered include:

  • Misrepresentation– If you misrepresent a service or final product to a client that later causes them a financial loss, whether it’s intentional or unintentional, the client can sue for damages. A good example is a an architect designing a roof that can not support a heavy snow . The owner on learning of your error can sue for this design error.
  • Violation of good faith and fair dealing– Service providers are mandated to provide full disclosure. Failing to disclose all important information violates good faith and can cause liability claims to be raised against you by the client. A good example is an insurance agent withholding some information when signing up a client. This can make the policy most appealing, provided that the client does not know about the policy’s strict terms and conditions. When a deal is not honored due to information the client was not made aware of, they can sue the insurance company, or possibly the agent, for violating the act of good faith.
  • Inaccurate advice– If you are a consultant and provide advice to your clients based on falsified information, they are likely to raise claims should your advice cost them losses. Be keen and give accurate advice, but also have an indemnity cover as a backup plan.
  • Privacy violations– If you leak information about clients, that is considered a data breach in which their privacy has been violated. Sometimes this can be totally beyond your control, e.g. when your company gets hacked. Nonetheless, it is still your responsibility to bear. Have a Liability insurance policy just in case of such adversities.


Exemptions not covered in a professional Liability Cover

The following claims are not covered by professional indemnity insurance coverage. They are considered exemptions and can be covered by other insurance policies such as general liability insurance coverage or workers compensation insurance. Criminal activities, however, are not covered by any insurance and you should be able to cover the full cost of such lawsuits on your own.

  • Intentional malpractice
  • Illegal / criminal acts
  • General liability Insurance claims
  • Employee / third party body injuries
  • Employment disputes
  • False advertising
  • Property damage or destruction

As a professional, your business is as important as your clients are. Sometimes, you will genuinely miss the chance to execute your services satisfactorily. This can be negligence on your part, or an honest error. Other times, you will encounter clients who will pass the full responsibility of their needs to you. Hence, you will be blamed if things don’t go as per their expectations.

It is good to have Professional Liability Insurance Coverage at hand to protect your business against any claims raised by clients. Make sure the policy is always in an active state and covers all aspects of your business, especially if you run a small business. You can take up additional forms of business insurance including general liability policies to complement your Professional Liability Insurance Coverage.


By Ashley Edwards

Written by: John Brown
John has more than 25 years of experience in the insurance industry. He grew from a star insurance producer to owning one of the largest agencies in the country; he's a reference regarding contractor's insurance, commercial insurance, and builders' risk insurance.