Modern professionals face risks from legal challenges and disputes. These issues can arise even when consultants, advisors, and experts faithfully carry out their duties. That’s why professionals and employers need a specialized form of liability insurance coverage to ease the burden of claims against their services.
But exactly what is professional liability insurance, what does it cover, and how can your business take advantage of it?
Professional Liability Insurance Defined
Professional liability insurance (PLI) covers service providers from financial claims that result from the services they deliver. While general liability insurance covers injuries and damages from accidents or physical failures, professional liability insurance protects against the rendering or failure to render professional services such as claims of mistakes, negligence, and malpractice incurred in consultations, advice, and personal service. |
Professional liability insurance — also widely known as “errors and omission insurance” — helps alleviate the burden of legal expenses and damages regardless of whether third-party claims have legal merit and are in good standing.
A PLI policy may include protections against concerns such as:
Inadequate performance
Neglect
Errors
Contract and confidentiality breaches
Inaccurate advice
Across the globe, the professional liability insurance market is expected to top $60 billion in value over the next seven years. The growth of technology — and the complex nature of cybersecurity — fuels much of the PLI market.
However, it may be even more crucial for individual practitioners, like doctors and lawyers, to line up comprehensive personal liability policies. Just one claim arising from a single incident can wipe out the fortunes of a business of limited size.
How Does Professional Liability Insurance Work?
In what situations can professional liability insurance protect policyholders from excessive damages? Here are just a few examples.
Medical Malpractice
A medical professional can honestly misdiagnose a patient’s condition, resulting in incorrect treatment that jeopardizes the patient’s health. When this happens, PLI can alleviate the professional’s exposure to financial damages arising from the patient’s malpractice claim.
Technology Consultant Error
Suppose that an information technology consultant designs and installs a comprehensive cybersecurity system for a client. Though the IT worker does a thorough job, a data breach gets through the network, causing a system outage and confidentiality violations. In this case, PLI can cover the consultant’s legal fees.
Legal Malpractice or Negligence
An attorney might advise a corporate client on regulatory matters but mistakenly give them inaccurate advice and miss a crucial filing deadline. In this instance, PLI can help the lawyer address the errors without risking financial devastation.
These are just a few of the professional scenarios where PLI can be beneficial. The process for a typical professional liability claim follows this rough timeline:
The professional commits the error, negligence, or misdelivery of service
The client identifies the error and notifies the professional
The professional notifies their insurance company
The insurer investigates the claim
The insurer draws up a legal defense for the professional
The insurer may offer to negotiate or mediate with the client
Legal proceedings are initiated, and a judgment is eventually reached
The insurance policy kicks in if the settlement falls under coverage limits
The claim is resolved and closed
What Does Professional Liability Insurance Cover?
A professional liability insurance policy covers several areas of professional conduct and oversight, including the following:
Missed deadlines
Incorrect advice
Defamation or libel
Resource mismanagement
Fraud and deceptive practices
Misrepresentation of qualifications
Failure to obtain permits
Faulty security
Inaccurate records
Unreported conflicts of interest
Inadequate employee supervision
Emotional distress
Situations that PLI does not typically cover include criminal acts, services outside the scope of duty, property damage, slip and fall accidents, pollution, environmental damage, and other incidents not strictly connected to professional services. Many of those claims can be covered by other insurance policies.
Who Needs Professional Liability Insurance?
Any company, business, or individual that offers advisory or professional services for a fee is well-served by a professional liability insurance policy. Occupations that are frequently subject to legal claims for negligence, errors, or deficient performance especially need to line up PLI coverage.
Some of the more high-profile businesses for which PLI is necessary include:
Medical Staff: Doctors, surgeons, nurses, admin staff
Legal Professionals: Lawyers, attorneys, paralegals, consultants
Financial Advisors and Consultants: Investment consultants, stockbrokers, wealth advisors
Real Estate Professionals: Brokers, agents, property managers, appraisers, inspectors
Construction Professionals and Advisors: Architects, building engineers, contractors, surveyors
Technology Companies: Software developers, IT consultants, cybersecurity experts, UX and UI designers, network consultants
Media Professionals: Public relations consultants, advertising agencies, social media managers, market researchers
Wellness Professionals: Fitness instructors, personal trainers, nutritionists, mental health coaches
These are just a few of the specific occupations that benefit from professional liability insurance. In general, any business that provides specialized service, expertise, or advice should strongly consider obtaining or updating its PLI policies.
How Much Is Professional Liability Insurance?
The premium you’ll pay for professional liability insurance hinges on a few factors, many of which are predictable. These can include:
Your area of practice
Where you work
Annual revenue
Coverage limits and deductibles
How long you’ve been in business
Number of employees
How commonly claims are filed in your field
What Is Professional Liability Insurance’s Advantage?
Professional liability insurance should be a staple of every company’s risk transfer plan. It can save your livelihood and defray some of the most troublesome expenses of a business’s lifespan.
Maintaining best-in-class PLI coverage and limits will likely be a requirement of signing new contracts to add revenue streams to your business. Most contracts today specify that you must maintain PLI coverage at specific limits and retentions.
Maintaining sufficient PLI coverage also speaks volumes about your company’s consideration and values. Supporting a positive corporate culture is more important than ever. Potential, talented employees are seeking working environments that respond to their needs and concerns. Knowing that they’re supported — even when they make honest mistakes — reassures them and enables them to excel. That, in turn, produces measurable results and attracts new talent.
Whether for yourself or on behalf of your company, talk to an insurance professional about the benefits of professional liability insurance and how its protections can improve your bottom line.
