Professional Liability Insurance

Mistakes happen. No matter how careful a professional is, errors are possible. Many times, an error doesn’t have any fallout or consequences. When a professional makes a mistake that costs a client money, or worse, their health, that client is most likely going to file a lawsuit against the professional. Will your business be able to bear the cost of providing a defense and any awards which could be given to the client for their loss?

Professional liability insurance is an insurance policy that protects professionals against liability incurred as a result of an error or omission while performing their services. This type of insurance is also known as malpractice insurance and sometimes, it is called errors and omissions. In the medical field, this type of insurance is often required by law, as it may be in the legal profession. However, many different professionals require this type of policy, for example:

• General contractors or artisans
• Software developers
• Accountants
• Consultants
• Architects

Professional liability insurance helps cover the cost of defending yourself or your company in a negligence claim that is originated by a client. If the claim leads to a judgment, the policy can also cover those costs. The insurance covers the defense whether the claim is groundless or valid. Professional liability insurance doesn’t cover auto accidents, employee injuries, fraud or intentional acts. It won’t cover criminal prosecution costs, either.

Professional liability insurance cost is based on three key factors:

• Policy limits
• The industry of the business
• Size and scope of your business

Architects, engineers and doctors often pay much more for their insurance than accountants, notary publics and counselors. There is no average cost of professional liability insurance, because the amounts vary so much. The final policy cost largely depends on the amount of risk your company faces if a mistake is made. However, you can almost be sure that the annual cost of professional liability insurance is much less that the defense costs will be should you have to go court. The question is not always whether you can afford the insurance, but can you afford to be without it?

Any professional who renders a service should have professional liability insurance, but the price tag can make business owners think twice. Here are some tips for keeping your costs lower:

• Choose a higher deductible, which generally lowers your premium.
• Keep your professional liable claims history clean.
• Maintain good procedures within your company to reduce mistakes and errors and implement strategies that prevent clients from making claims.
• Bundle your insurance policies. Typically, you’ll get a discount when you have several insurance policies through a single insurance company.
• Talk to your agent about customizing your coverage for your business. For example, you may be an architect, but if part of your business is interior design, it carries less of a risk, which could impact your premiums.
• Don’t start and stop your insurance coverage. Although professional liability insurance operates on a claims-made basis, if the incident occurs when you do not have insurance, it won’t be covered. Keep your coverage in force for the long haul. If you are retiring, but want to make sure you have insurance coverage for claims that occurred when you were in practice, you may want to ask your agent about an occurrence policy.

Policies will vary in coverage and limits, so you will need to ask questions before finding a policy that fits your needs.

• When is coverage activated under the policy?
• What types of situations are not covered? What are?
• Are allegations covered or will a formal complaint have to be filed?
• What types of expenses are covered under the policy?
• Can your company recoup lost revenue if it is disrupted by legal proceedings?
• What is the deductible? What does the deductible apply to?
• What if you are found guilty? Will the policy still cover the costs, the judgments and the settlements?
• Does the policy have a “duty to defend” or “right to defend” provision? The duty to defend means that the insurer must defend the insured, you, from lawsuits. A right to defend offers the insurer the option to defend you.

The amount of professional liability insurance you need will depend on your profession. A surgeon may need much more coverage than a general practitioner or a dentist. Check with your professional license board to make sure you have enough insurance as required by your state. If you aren’t sure how much insurance coverage to have and your professional is not required to have professional liability insurance, your licensure board may have some general guidelines. Your insurance agent will have industry-recommendations, also.

Professional liability insurance is generally customized to your business more than other types of insurance. The application might seem daunting, but it is manageable and once your insurance is in place, you’ll have peace of mind. Most insurance companies will want financial documentation about your business, this year’s revenue, projected revenue and what percentage of your revenue comes from your largest client. You should be prepared to give employee and payroll information.

The insurance carrier should also be told of any subsidiaries or ownership stakes you have in any other company. You may need to provide information about your operations and whether you use a written contract. All of these items are related to risk. Your agent may be able to offer solutions to keep your risk low. Your insurance company does not want to have a claim any more than you want to go through a lawsuit. It’s important to work together with your agent to reduce your liability.