If you have a business that provides certain types of services to clients, it may not be a question of whether you need general liability insurance or professional liability insurance. You might need both.
General liability insurance and professional liability insurance protect a business from various liability exposures they face. Meaning, if somebody wants to sue you for damages that they claim you caused, your liability insurance will protect you. But each type of policy only provides protection for certain types of damages. General liability insurance typically applies to a wider range of business operations. Professional liability insurance provides protection for “professionals” who are sued for negligence or wrongdoing related to their work.
All businesses need general liability insurance. Only certain businesses need professional liability, or errors and omissions insurance.
Individuals or firms that provide professional services to clients need professional liability insurance. A professional is someone who has special knowledge and skill in a certain area, and who uses that skill to provide advice and services to others. Doctors, lawyers, architects, engineers, and accountants traditionally require errors and omission insurance. However, as our society becomes more litigious, errors and omissions insurance is becoming equally important for an expanding scope of professions including actuaries, real estate agents, insurance agents, and more. In addition, advertising and PR firms, Internet service providers, Web hosting companies, and many other types of firms now must seriously consider investing in professional liability coverage.
Professional Liability Coverage
Errors and omissions insurance covers professionals, their partners, their employees, and the partnership or corporation for damages caused by providing or failing to provide professional services. Claims can be made based on erroneous advice, errors in services provided, or if the client lost money due to an act of negligence or an omission. It protects you in the event of actual or alleged errors, loss of client data, negligent oversell, system failure, or misleading statements.
Most E&O policies cover defense costs as well as settlements or judgments. Policies can be customized for the exposures that your business faces, with physicians requiring the most specialized E&O coverage, or medical malpractice insurance.
Professional liability policies usually exclude coverage for criminal, fraudulent, or malicious acts; bodily injury or property damage (except in the case of medical malpractice); workers’ compensation claims; and punitive damages. Other exclusions may apply depending on your profession and your policy. E&O insurance is for liability claims directly related to the provision of professional services, and the resulting financial loss for a client or customer. Remember that losses related to other areas of your business or other liability claims will not be covered by professional liability insurance. This is where your general liability coverage or other types of business insurance will come into play.
You will need to work closely with your insurance agent to make sure your policy fits your needs. This is a complex issue and great care must be taken to ensure that your coverage is sufficient. Do you feel you have adequate professional liability coverage? Do you not have E&O coverage but think you might need it?