Professional Liability Insurance

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What is Professional Liability Insurance?

Professional liability insurance, also called errors and omissions insurance (E & O insurance) or indemnity insurance, protects your business if you are sued for negligently performing your services, even if you haven’t made a mistake.

You may be extremely confident that product works as advertised or that your services are performed with reliability and precision. Your confidence may be completely warranted. You probably still need errors & omissions insurance.

Professional Liability insurance covers two very big risks: 1. Financial loss of a third party arising from failure of the insured’s product to perform as intended or expected and 2. Financial loss of a third party arising from an act, error, or omission committed in the course of the policyholder’s performance of services for another.

Do I need Professional Liability Insurance?

Almost every business owner or contractor will benefit from a Professional Liability policy. You should consider getting a policy if your business:
  • Provides a professional service.
  • Regularly gives advice to clients.
  • Is requested by a client to have professional liability insurance to complete a contract

What does Professional Liability Insurance cover?

Please note that each policy is different and some addons may be necessary depending on your business.
Claim Type
Definition
Example
Defense Costs Professional Liability insurance insurance will often help cover defense expenses that result from a claim made against you or your business by a customer or client who is unsatisfied with your services due to an error or mistake. A homebuyer sued the agent who sold them their new home after they determined that the property which was advertised as 15,000 square feet was actually only 10,000. Different methods for measuring square footage were blamed. The suit was for $5 million and the case is currently in its second round of appeals with tens of thousands in legal costs already booked.
Employee errors Professional Liability may cover claims that stem from errors made by employees, independent contractors, or temporary staff. An advertising consultant encouraged a clothing company to rebrand, target a new market and launch an in-your-face ad campaign. The strategy failed, losing the clothing company significant market share. They were also the target of lawsuits after several groups found the ads to be offensive. After suing the consultant, the clothing company agreed to settle for $1.2 million. The consultant had incurred $125,000 in legal costs by then.
Loss of earnings Claims made by clients can lead to extensive income loss due to the amount spent at depositions and trials, E&O can help cover this loss of earnings. Several limited partners sued the fund after a failed investment is determined to have been made negligently, driven largely by a conflict of interest rather than intrinsic value. The LP’s also claim improperly charged fees. After spending $60,000 in defense costs, the fund settled with the LP’s for $225,000.

Defense Costs

Defense Costs

What It Covers

Professional Liability insurance insurance will often help cover defense expenses that result from a claim made against you or your business by a customer or client who is unsatisfied with your services due to an error or mistake.

Why you need it

A homebuyer sued the agent who sold them their new home after they determined that the property which was advertised as 15,000 square feet was actually only 10,000. Different methods for measuring square footage were blamed. The suit was for $5 million and the case is currently in its second round of appeals with tens of thousands in legal costs already booked.

Employee errors

Employee errors

What It Covers

Professional Liability may cover claims that stem from errors made by employees, independent contractors, or temporary staff.

Why you need it

An advertising consultant encouraged a clothing company to rebrand, target a new market and launch an in-your-face ad campaign. The strategy failed, losing the clothing company significant market share. They were also the target of lawsuits after several groups found the ads to be offensive. After suing the consultant, the clothing company agreed to settle for $1.2 million. The consultant had incurred $125,000 in legal costs by then.

Loss of earnings

Loss of earnings

What It Covers

Claims made by clients can lead to extensive income loss due to the amount spent at depositions and trials, E&O can help cover this loss of earnings.

Why you need it

Several limited partners sued the fund after a failed investment is determined to have been made negligently, driven largely by a conflict of interest rather than intrinsic value. The LP’s also claim improperly charged fees. After spending $60,000 in defense costs, the fund settled with the LP’s for $225,000.

How much does Professional Liability cost?

More often than not, the premium is a function of company revenue. Changes in revenue will often be the driving factor for increase or decreases in cost on renewal.

But how is premium initially determined? This depends entirely on the industry. Tech E&O policies may look at revenue in conjunction with monthly average users. Allied health/malpractice premiums will be guided by the number of covered care providers. A tour guide’s E&O policy may be rated on “hours”: hours per tour x number of customers per tour x number of tours per year.

It’s difficult to give an estimated premium as so many variables come in to play. Other factors also include:

  • Location
  • Claims history
  • Policy limits

General Liability Insurance FAQ's?

How long does it take to get a quote?

The underwriting process typically takes about a week. This is often shorter, but can also take longer depending on the complexity of your business and the coverage(s) being requested, but as long as your submission is complete, we should be able to expedite your quotes. Your Account Executive should be able to give you a more accurate estimate upon review of your application.

From submitting the application, it can take between 3-7 days to receive a full proposal depending on which coverages you have applied for.

What information do I need to provide?

The required info can differ slightly depending on the coverages selected on our site, but basic company info, revenue and payroll figures, and relevant financial statements are the most important. Certain coverages will require specific documents, but once you select the coverage(s) you need, the application will prompt you for the required information

What is the difference between an Admitted and Non-Admitted carrier?

An Admitted Carrier is backed by the government. In the event the insurance company fails, the state will step in as necessary to make claim payments. With a non-admitted insurance carrier, there is no such protection.

How long until I get my policy?

Policies often take 30 to 45 days for the carrier to issue and for the state to stamp when necessary. Binders and Certificates of Insurance are issued as proof of coverage in the meantime.

What payment options exist for my professional liability policy?

Cover Small Business partners offers a range of payment options, including debit and credit card (Visa, MasterCard and American Express) payment. You can also choose to pay the full amount in one lump sum each year or pay monthly.

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