What is professional liability

Professional Liability Insurance: What It Is and How It Works

Professional Liability Insurance (PLI), also known as Errors and Omissions (E&O) insurance, is a safeguard for professionals in industries such as financial services, healthcare, real estate, and IT consulting against damages arising from the rendering of, or failure to render, professional services. It’s designed to protect against claims initiated by clients, covering a range of liabilities not covered by commercial general liability coverage.

Professional liability insurance, also known as ‘professional indemnity insurance,’ protects individuals against negligence claims made by their patients or clients.

Table of Contents

  1. 01
    Understanding Professional Liability Insurance
  2. 02
    Who Needs Professional Liability Insurance?
  3. 03
    Key Features and Coverage Limits
  4. 04
    What does Professional Liability Insurance Cost?
  5. 05
    FAQs

Understanding Professional Liability Insurance

In understanding Professional Liability Insurance (PLI), it’s essential to recognize its broad coverage and the specific risks it addresses, especially for those in service-providing industries such as financial services, healthcare, and IT consulting. Here are key points to consider:

Coverage Scope:

    • Legal costs associated with negligence, errors, or omissions in services provided.
    • Financial protection against claims of undelivered services and breach of contract.
    • Includes defence against accusations like negligence, misrepresentation, or providing inaccurate advice.

Distinct Features:

  • Unlike general liability insurance, PLI focuses on non-physical claims related to professional services, excluding bodily injuries and property damage.
  • Policies are typically claims-made, meaning they cover claims made within the active policy period. However, Occurrence policies protect against incidents during the policy’s term, regardless of when the claim is filed.

Benefits for Professionals

  • Protects against frivolous lawsuits and covers damages or reparations to the claimant, ensuring peace of mind.
  • Maintains professional reputation by defending against unfounded allegations and supports financial stability by mitigating legal costs.

 

Who Needs Professional Liability Insurance?

Professionals across various industries providing services or advice should seriously consider the protection offered by professional liability insurance (PLI).

Here’s a breakdown of who needs this coverage:

Legal and Financial Experts

      • Accountants, lawyers, and real estate agents are among those who may not only benefit from PLI but may also require specific forms of malpractice insurance depending on their employers.

Service Providers and Consultants

      • This includes but is not limited to financial advisors, IT consultants, software developers, web designers, and healthcare professionals. These individuals risk facing claims related to the advice or services they provide.

Design and Construction Professionals

    • Architects, engineers, independent contractors, and interior designers need PLI to cover potential claims arising from errors or omissions in their work.

Important Note:

Small business owners and even employees in these fields might find themselves needing PLI based on client requirements or as a safeguard against professional mistakes 

Key Features and Coverage Limits

Professional Liability Insurance (PLI)’s primary purpose is to cover your legal expenses.

If a client sues you, or even threatens to sue you, for a professional mistake, this coverage is key because claims can arise from many different situations, such as:

Negligence:
Alleging you failed to perform your duties to the expected standard.
Errors or Omissions (Mistakes):
Claiming you made an error, a miscalculation, or missed an important detail in your service or advice.
Misrepresentation:
Saying you provided false or misleading information..
Breach of Contract:
Claiming you failed to deliver promised services or meet deadlines.
Coverage Limits

Flexible coverage options depending on your business size:

  1. For smaller businesses: You can choose coverage limits starting at $250,000 and going up to $2,000,000.
  2. For larger businesses: You have the option to get much higher coverage, reaching up to $25,000,000.
Claims -Made Basis

Most policies work on a claims-made basis. This means the policy will cover you for a claim as long as two things are true:

  1. The claim is made against you while your policy is active.
  2. The mistake or event that caused the claim also happened while the policy was active.

What does Professional Liability Insurance Cost?

The cost of Professional Liability Insurance (PLI) is a critical consideration for professionals in the service or advice consulting sectors.

Here’s a breakdown to help you navigate through the pricing:

Average Annual Costs

  • Small and medium-sized businesses: $1,200 – $5,000 annually [1]

The prices listed are estimates only. Various factors will determine your actual premium.

Factors Influencing Costs

Industry and Practice Areas:
Costs vary significantly by professional field and the specific services offered.
Business Size and Employee Number:
The more employees and revenue there are, the higher the potential risk and cost.
Claims History:
A history of claims and loss ratios can lead to increased premiums.
Policy Limits and Add-ons:
Higher coverage limits and additional protections can raise the price.

This insurance not only protects against potential financial pitfalls due to claims of negligence or error but also instills a sense of security.

For individuals operating within these service-oriented and advisory domains, embracing PLI stands as a prudent step toward fortifying their professional endeavours against unforeseen challenges. By doing so, they not only preserve their financial stability and professional reputation but also ensure their ability to continue providing valuable services to their clients.

Frequently Asked Questions

What is the function of Professional Indemnity (PI) Insurance?

Professional Indemnity (PI) Insurance is a type of commercial policy that safeguards the personal actions of professionals rendering aid against claims of substandard service by clients. It is applicable to any organization that offers professional services or advice, providing protection in case a client is dissatisfied with the work and decides to sue.

Can you explain the distinction between Professional Liability Insurance and General Liability Insurance?

The main difference between Professional Liability Insurance and General Liability Insurance lies in the nature of the claims they cover. General Liability Insurance addresses compensation claims filed by individuals who have suffered personal injuries or property damage.

In contrast, Professional Liability Insurance deals with compensation claims from clients who are affected by errors or omissions in the professional services provided.

Insights are not intended to be exhaustive, nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice. The statistics referenced in this article are based on publicly available information.

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Last updated: November 7