Professional liability insurance also known as errors and omissions Insurance protects you against the financial consequences of any lawsuits against your small company. This is a vital business insurance product that you should have as an entrepreneur, or self-employed individual. If you don’t have the right policy, you could face a lawsuit for a mistake that you made.
Let’s say you made a mistake, or that your deliverable did not meet the client’s expectations. Your client may sue you for damages. Professional liability insurance covers your legal expenses in this situation.
This article explains what professional liability insurance doesn’t cover. This post also explains exactly what the policy covers.
What professional liability insurance does cover and what does it not?
Any business owner or self-employed person can have professional liability insurance to protect them from negligence arising out of their professional services. There are many types of purchasers, from accountants to hairdressers. You can typically expect to be protected from any legal claims against your business or you for errors, omissions or negligence that occur in your business’s normal conduct, as long as your policy period is not expired.
General liability insurance does not cover the policy. General liability insurance protects your company from claims relating to bodily injury or property damage, as well as slander and libel claims.
Imagine someone visiting your accounting office, and falls on the main foyer floor due to a slippery floor. Your professional liability insurance would not cover the costs of lawsuits and damages. Your general liability insurance pays the bill.
These insurance policies do not cover criminal liability. A separate policy will be required for cyber security liability. Cyber liability is usually when hackers or viruses cause data loss or leakage that causes customers or clients harm. This can lead to a legal claim.
Professional liability insurance doesn’t cover employees for work-related illnesses or injuries. This is covered by workers’ compensation insurance and you can click here to learn more.
What is professional liability insurance and what does it pay for?
First, professional liability covers legal defense costs. To defend against a client’s claim, you will need to hire a lawyer. An hourly rate for a lawyer can easily run between $300 and $1,000. These bills are not something you should be paying yourself.
Sometimes, the court may order that you also pay your client’s legal costs. You are responsible not only for your lawyer’s fees but also those of the opposing party. This amount can be covered by professional liability insurance.
Your policy covers legal damages. You can expect to be compensated if you are held responsible for the client’s injuries. You may be compensated for the loss of profits or consequential losses. These damages are covered by your insurance, as well as the legal fees, up to the policy limit.
Here are some examples of situations professional liability insurance can cover
1. Missed deadlines
Clients are often under tight deadlines. Clients might require a graphic by Friday in order to launch their marketing campaign. Their website must be available by the fifth month in order to be ready for a seasonal sales event.
These deadlines could be a significant loss to clients if you are a web designer or graphic designer. If you fail to meet these deadlines, your clients might sue.
Your client’s failure to hold their Black Friday sale could result in hundreds of thousands of lost profits. You could be bankrupt if you don’t have the right insurance.
2. Make-up errors and mistakes
An error or mistake can have similar consequences as missing deadlines. Let’s say that the website you created doesn’t allow shoppers to complete their purchase. Your client is unable to make sales for one week. This situation could lead to your client losing their entire week of profits.
This could lead to a serious financial loss. You would also be responsible for legal fees. These fees can be paid by professional liability insurance.
3. You are blamed by the client
You can’t just make a mistake and bring a lawsuit. These lawsuits can also arise when the client feels you are negligent. You may need to hire a lawyer in this situation to protect yourself. Even if you are in the right, legal fees can still be incurred unless you have professional liability insurance.
Imagine that the client fails to make the expected sales at their big discount event. You might be blamed for not communicating the discounts clearly in your graphics. Even if the claim is not your fault, a legal case can still make you liable for lawyer fees and other court costs.
Professional liability insurance covers legal costs arising from misrepresentation, negligence, errors, or omissions within your business. You should understand the other policies that you have to protect your business from potential lawsuits.