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What Does Professional Liability Insurance Cover?

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Last year, 14,347 businesses filed for bankruptcy. Cash flow problems are a common cause of a business going under and these issues can stem from different circumstances.

One way to go bankrupt is to forgo important business insurance policies. If you get sued by a client and lack the proper insurance, your business might not survive.

You'll need to pay for legal fees and compensate a client out of pocket if you are liable.

Professional liability insurance can help you in certain situations, but what does professional liability insurance cover? Keep reading to find out.

What Does Professional Liability Insurance Cover?

Professional liability insurance protects your company from accidental oversights and failure to complete a project. This type of insurance is also called errors and omissions (E&O) coverage.

If you cause a client to lose money, they can sue you.

Professional liability insurance coverage is different for each industry. Not every business has the same risks.

Here are some examples based on industry:

  • A personal trainer's client thinks their chronic back pain occurred because of bad advice
  • A carpenter's client accuses them of installing an appliance improperly
  • A hairstylist's client claims they have permanent hair damage because of products used during their appointment
  • A housekeeper's client believes they destroyed a pricey couch by using the wrong cleaning product

First, professional liability coverage pays for legal defense costs. In some circumstances, the court will order you to pay for the legal fees of the client that is suing you. E&O insurance also covers these costs.

Lastly, your policy will pay for legal damages. If you are found liable for your client's harm, you need to pay compensation for their losses.

Unexpected costs are covered by professional liability insurance in these cases:

Business Mistakes

You are protected by errors and omissions insurance when you make a business mistake. It's possible to make a mistake when you follow all of the rules and do your job to the best of your ability.

Professional liability insurance protects you from out-of-pocket costs. If you or your employees get accused of a business mistake, you are covered. The mistake has to have caused financial loss.

You'll be covered up to your policy limit for business mistakes.

Missed Deadlines

Clients with tight deadlines deal with substantial losses when those deadlines aren't met. If your business is responsible for meeting client deadlines, they can sue you when you don't make them.

Your policy can also cover you if you promise to deliver certain services and fail to do so. This is especially true if your failure to deliver results in a financial loss for your client.

Without professional liability insurance, your inability to meet a deadline and cause financial loss can result in bankruptcy. Paying for legal costs out of pocket won't be good for business.

Professional Negligence Accusations

Business professionals have an obligation to act in the best interest of their clients. When you provide advice or services, you have a "duty of care."

If you are accused of professional negligence, you will be forced to defend your actions if they cause financial loss for a client.

For example, accountants can use this insurance if a client sues them for making paperwork mistakes that led them to lose out on tax advantages.

Your policy would cover expenses related to this problem up to your policy limits. This includes paying for lawyer fees and judgments if you are ruled liable by the courts.

What Does It Not Cover?

Now that we've answered the question, "what does professional liability insurance cover?", it's important to explain what it doesn't cover.

Although these policies can aid professionals in various situations, most policies don't cover the following:

False Advertising

If you are marketing yourself or your products with misleading information, you won't have E&O coverage. For situations like this, you'll need general liability insurance.

Property Damage or Personal Injury

Property damage and personal injury generally occur from simple bad luck. If you accidentally cause injury to your customers or those passing by your property, you'll need general liability coverage.

If injuries occur to clients because of an indirect link to your professional service, you'll need product liability insurance coverage.

The same goes if you have damages to your property. Items that get lost, damaged, destroyed, or stolen can be covered through a business owner's policy (BOP).

Employee Injuries

Professional liability coverage doesn't protect employees if something happens to them while on the job. Workers' compensation is generally required by the state and can save you under these circumstances.

Workers' compensation insurance covers employee medical expenses and lost wages if they have to miss work because of their injury.

If an employee is using a company vehicle and gets into an accident, commercial auto insurance will cover this.

Intentional Wrongdoing and Illegal Activity

One of the best professional liability insurance tips is to follow the law and work to your best ability even when you have a great policy.

Professional liability insurance doesn't cover you or your employees if you are intentionally wronging clients and/or involved in illegal activity.

If you take shortcuts that result in damage or neglect to comply with regulations, you will likely have to pay for the consequences out of pocket.

Find a Professional Liability Policy Today

What does professional liability insurance cover? This policy covers business mistakes and negligence.

If you get sued by a client for causing their financial loss, this guide can help you understand your protections with professional liability insurance.

Every industry can benefit from this type of policy. If you are ready to find the best coverage for your business needs, get a quote from us today.

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