Professional Liability Insurance
Is the Type of Job You Have Putting You at Risk for Being Sued?
We live in the age of lawsuits, and if you operate in certain professions, there is a good chance you will be sued at least once over the course of your career. Statistics show that medical professionals are the most likely to be sued. According to data from the National Practitioner Data Bank, insurers forked out $3.3 billion in medical-related lawsuit payments in 2013. Lawyers are also common targets of lawsuits. American Bar Association statistics show that attorneys have a 17% chance of being sued each year.
Unfortunately, professionals of all types can be sued. If you are in the business of providing advice or guidance, you could find yourself on the wrong side in a lawsuit. Professionals at risk include financial and accounting professionals, architects, designers, consultants and health and wellness practitioners. Despite the well-known risks, many professional service providers simply don’t acknowledge the risk of a lawsuit until after a client or patient hires an attorney.
It’s best to be prepared before a lawyer comes knocking. Protecting your business, finances, and reputation with a professional liability policy is imperative if your clients pay for your expertise, knowledge, advice or care. A local independent agent can compare professional liability insurance quotes from a variety of insurance companies and find you the right coverage at a competitive rate.
What Is Professional Liability Insurance?
Almost everyone has heard of medical malpractice insurance, but professional liability insurance is not as well-known. The exact definition of professional liability insurance varies depending on the professional being insured; but in general, it protects you against "errors and omissions" that occur when rendering professional services. Basically, it safeguards you against mistakes or negligence that result in a financial loss for your client. It differs from a general liability policy, which is designed to cover bodily injury and property damage claims.
Professional liability insurance covers the cost of legal defense and any judgments or settlements up to the policy limits. Lawsuits can be extremely costly, with damages running into the hundreds of thousands of dollars in a major suit.
Professional liability insurance goes by a number of different names and can be applied to a wide variety of professions. Here are three of the more common types of professional liability insurance:
- Malpractice insurance: This coverage is designed especially for medical professionals. It protects against suits that allege negligence or mistakes. Anyone working in the healthcare field should consider a malpractice policy.
- Errors and omissions liability insurance (E&O insurance): This type of coverage is ideal for lawyers, consultants, real estate agents, stock brokers, insurance agents, designers, architects and others. These professionals offer their advice and knowledge to earn a living. Clients who act on that advice, whether it be buying a certain type of insurance or purchasing a particular stock, are at risk and may feel that the service provided resulted in a financial loss.
- Directors and officers liability insurance (D&O insurance): This coverage is specific to high-ranking executives in a company. It handles a variety of circumstances, including unlawful acts, poor investment decisions, the release of confidential information, issues with hiring and firing, gross negligence, conflicts of interest, and other errors.
Professional liability insurance comes in two different flavors, claims-made and occurrence. A claims-made policy must be in effect not only when a lawsuit is filed, but also when the incident that prompted the lawsuit took place. This is the most common type of policy and is usually cheaper.
Occurrence coverage covers any incident that takes place during the coverage period, even if the suit is filed after the policy has expired. These policies provide more comprehensive coverage, but tend to be expensive.
What Kinds of Professionals Can Be Sued?
The list of professionals who can be sued by their clients is endless, but some are more likely than others to find themselves in court. If you fall on this list, professional liability insurance is a must. In many states, doctors and attorneys are required to carry professional liability, but it’s optional for others. Here are a few professionals who should consider this type of coverage:
- Graphic designers
- Information technology consultants
- Insurance professionals
- Investment advisors
- Management consultants
- Real estate agents and brokers
- Software developers
This list is hardly complete. Anyone in a profession where a mistake can result in a financial loss should consider professional liability insurance. Dentists, wedding planners, transport professionals and even hairdressers can find themselves the target of lawsuits.
Large organizations need to protect their directors and officers. Lawsuits can come from a variety of areas. The 2015 JLT Specialty U.S. Directors and Officers Liability Survey found that 32% of lawsuits were employment-related (hiring and firing), 35% were related to shareholder suits, 18% were fiduciary, and 15% fell under the regulatory banner.
D&O coverage is available in three different types, sides A, B and C; the differences are who is covered under what circumstances. Consult with an independent agent to learn which D&O or personal liability coverage is best suited to your company.
Why Should I Get Professional Liability Insurance?
Just about any professional can be sued these days. Professionals of all types can benefit from the protection of professional liability insurance. If you are concerned that your company may not support you during a lawsuit, you will want to protect yourself with individual professional liability insurance. For example, if for any reason there is a conflict of interest, your company’s insurance policy won’t provide coverage. The costs of legal defense and possible settlements or judgments may then be taken from your personal financial assets.
Here are a few real-life examples that help answer the question: “Who needs professional liability insurance?”
- Financial advisors: Brokers and financial advisors are especially vulnerable to lawsuits, regardless of the legitimacy of the claim. Suits happen when clients see investments go south, even if they have been advised of the risks. Legal fees can be enormous, even on a bogus suit, making E&O coverage a necessity.
- Private investigators: These professionals spend lots of time researching information and digging up data that their clients use to make major decisions. These decisions can involve marriage, employment, or whether to enter into a contract with another party. If any of this information is incorrect, or details were overlooked, it could cause a financial loss to their clients.
- Lawyers: According to the Washington Times, roughly 50% of all malpractice claims in the legal industry involve mistakes related to the law. Common errors are inadequate discovery and not knowing the relevant law. Administrative errors, such as missing deadlines and calendar dates, rank high in one-person firms. Professional liability insurance will protect you regardless of whether the suit has merit.
- Consultants: Business and tech consultants are often at risk for lawsuits. Clients rely on their expertise to make important decisions regarding their business. Tech consultants may make a mistake that shuts down a client’s website or inadvertently introduces a virus into their system, resulting in a lawsuit.
- Contractors: General contractors are exposed to a variety of lawsuit risks. Mistakes and miscalculations can cause time delays and budget issues. Contractors can also be held liable for faulty work done by their subcontractors. A costly lawsuit could easily bankrupt your company if you’re operating without professional liability coverage.
Even if your profession does not fall into these categories, if you provide advice or expertise that could result in a financial loss to your clients, you should absolutely have a professional liability policy. Regardless of whether you are at fault, the risk of a lawsuit is real, and mounting a legal defense can easily bankrupt small or even medium-sized businesses. If you’re not protected by the right type of insurance, both your business and personal assets can be at risk.
Following are a few tips to help prevent lawsuits:
- Be careful: When talking to clients or the public, avoid statements or activities that could be construed as questionable. Improper actions and statements can quickly lead to a lawsuit.
- Find a great lawyer: Make sure you have a lawyer who can advise you on what to say and do if you are sued. Contact them immediately, before making any statements, and trust their advice.
- Protect your data: Protecting your customer data is key. A data loss can lead to legal action from customers or suppliers.
A Trusted Choice® agent can help you assess your risk of a lawsuit and determine the proper amount of coverage to protect your assets.
How Do I Get Professional Liability Insurance?
Unfortunately, people love to sue and it should be clear by now that carrying a professional liability policy is essential to protecting your business and personal assets. When shopping for a professional liability policy, one of the first things to consider is the claim limit. The amount of coverage needed can vary. One of the best ways to get advice on recommended coverage levels is to talk to industry leaders and a Trusted Choice agent who specializes in your industry.
Another factor to consider is defense costs. Some policies subtract the cost of your defense from the claim limit, which leaves less money available to pay any judgments. Other policies pay for defense costs on top of your claim limit. Finally, check for a loss of earnings clause. Policies that offer this benefit pay for the time that you spend in court, while policies without it don’t cover those costs.
Costs for professional liability insurance can vary widely depending on the work that you perform. To get an accurate quote, contact an independent agent. These agents have access to many professional liability insurance companies. They will advise you on appropriate coverage levels and search for multiple professional liability insurance quotes that fit within your budget.
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