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    Insurance | 2 min read

    Do I Need Professional Liability Insurance for My Business?

    Professional liability insurance is designed to help cover damages for legal expenses to defend your organization in the event of a lawsuit. Also known as errors and omissions insurance (E&O), this type of coverage protects your organization against potential fallout from accusations of performing a job or providing a service incorrectly or badly.

    What is professional liability insurance?

    Let's say you’re a software company providing services to help run a client’s computer system. The client you are working for keeps asking for changes to be made. At the end of the project, they become disgruntled and are unwilling to pay for the changes and work completed. A lawsuit develops related to errors or omissions made during the process of completing the project.

    Or, let’s say you are a real estate agent providing information on a seller’s home and you leave out information that might be important to the buyer. You may be sued for your omission to the buyers and your firm may be exposed to negative press, causing damage to your brand’s reputation.

    Enter, professional liability insurance. This type of coverage can help protect your business from lawsuits resulting from client claims of late, incomplete, or unacceptable work due to negligent acts, errors or omissions, or breach of contract during business activities.

    What type of lawsuits does professional liability coverage protect against?

    It’s no secret that lawsuits can be outrageously expensive for businesses. Professional liability coverage helps cover the cost of such lawsuits. Examples of covered events include:

    • Erroneous work due to employee oversight
    • Services not delivered
    • Incomplete work
    • Work completed past deadline
    • Projects running over contract price
    • Breach of contract
    • Negligence claims

    Am I legally required to obtain professional liability coverage for my business?

    This varies by business type, but certain industries and types of service providers are legally required to carry professional liability insurance.

    • Healthcare service providers: Medical malpractice insurance is one type of professional liability coverage for individuals in the medical field. Doctors, nurses, therapists, and other healthcare service providers are often legally required by state law, credentialing authorities, licensing agencies, healthcare plans, or other governing bodies to carry minimum professional liability coverage.
    • Government contractors: Federal regulations require government subcontractors to carry insurance, including professional liability coverage for “the perils to which the contractor is exposed”

    Some states and governing bodies also require professional liability for:

    • Attorneys
    • Accountants
    • Engineers
    • Real Estate and Title Agents
    • Insurance Agents
    • Investment Counsellors

    What types of businesses should carry a professional liability policy?

    Service-based businesses are more exposed to legal and reputational risk from dissatisfied clients. Examples of businesses that should consider obtaining professional liability insurance include, though they are not legally obligated to do so:

    • Wealth advisors
    • Consultants
    • Compliance officers
    • Salon owners
    • Construction contractors

    Conclusion

    Nobody’s perfect. Even the most seasoned expert in their field could make a mistake, leaving a client in distress. If that client decides to take legal action, professional liability insurance can step in and protect your business assets. Anyone who provides professional advice or services to consumers can benefit from shielding their business from a potential lawsuit from an unhappy client.

    Contact an Agent

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    Brett Morgan

    Brett Morgan specializes in alternative risk transfer programs, professional liability, Directors & Officers liability, and employment issues centered on protecting clients’ assets. He has an extensive background in understanding property exposures and a customer’s business processes. Brett has taught various seminars on business interruption, protecting your company while conducting business in foreign countries, and protecting your client’s internal controls from theft.

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