As a business owner, you likely have experience purchasing insurance policies. Without a doubt, you have heard the term “Professional Liability” insurance. Unfortunately, this is a less known policy than its General Liability or Commercial Auto counterpart. In this blog post, we want to discuss what Professional Liability policy covers as well as touch on why it’s one of the most essential policies for a small business owner.

 

Before we dive into the ins and outs of the Professional policy itself, let’s take a look at who needs this type of policy. Generally speaking most of businesses could use it, however those that absolutely, unequivocally need it are businesses that offer Professional service or advice. The most obvious professions that fall under this definition are accountants, architects, landscape designers, interior designers etc. However any consultant or freelance provider such as an engineer, copywriter and so on should have it as well.

 

Now, let’s take a look at what this policy is all about.

 

In the simplest terms, a Professional Liability policy protects you and your company against third party lawsuits as a result of a professional error or negligence. The insurance policy will pay the cost to defend the covered claim, such as attorney fees, court fees, and the cost to investigate the case. It will also cover any settlements or judgments awarded to the plaintiff against you.

 

It’s important to note that to get the policy to pay, you do not need to be found guilty. In fact, even if the lawsuit is baseless, the policy will still cover the costs associating with defending and investigating your case.

 

 

 

Many of our clients get the wrong impression that a General Liability policy will also cover any professional mistakes. The confusion comes from many using the term liability interchangeably to describe both policies. While of course, both are liability policies, they are designed to cover completely different types of claims. When you hear someone refer to a “liability” policy, always verify which policy they mean.

 

You might be asking, how is a Professional Liability policy different than a General Liability (or Business Liability)?

 

As the name implies, it covers general types of claims, for example, an injury that a client sustains by slipping and falling in the office; or property damage to a building that you rent caused. Other examples include copyright infringement, slander or libel, etc. This policy, expressly excludes coverage for any claim associated with your professional services. If you are a CPA, for example, any error you make in your client’s books will not be covered under General Liability policy as it pertains to your professional expertise.

 

As you can see, it’s very important to have the correct coverage to avoid an uncovered claim.

 

So what happens if you have an uncovered claim? Unfortunately, covering the lawsuit out of your own pocket can bring your whole operation to a screeching halt. Lawsuits are expensive. Actually, that’s not true – they are extremely expensive. With attorney fees averaging at $350-$400 per hour, it’s no surprise that one lawsuit can eat up all your personal and business capital.

 

As a small business owner, every dollar is important, and likely you do not have hundreds of thousands to spare. Taking on an additional expense in the form of insurance premium can be a tough decision to make, however, if you are sued that relatively small monthly expense, would save you thousands and thousands of dollars in legal costs.

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