What is Professional Liability Insurance

What is Professional Liability Insurance?

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Professionals that operate their own businesses need professional liability insurance in addition to any other type of insurance. This is to help them receive insurance cover against any transaction that did not go as planned.

Meanwhile, as a professional, you are expected to have extensive training in your area of expertise, including knowing what is at risk should the business transactions go wrong.

Therefore, you must perform only the service you are hired from or you intended to before starting your business.

Also, if you are hiring a professional, make sure they have a wide knowledge of their duties and what is not covered within their jurisdiction. 

Professional insurance is specialty coverage and is not provided under any other kind of insurance cover.

Below, we have compiled all the information regarding professional liability insurance. Have a great read.

Professional Liability Insurance – What Does it Mean?

Professional liability insurance protects business owners if a client files a lawsuit against them over an alleged or actual mistake or wrong piece of advice. It is often referred to as errors and omissions insurance.

Advisably, anyone who operates a business or provides a service to clients should have professional liability insurance. This will enable the person to focus on the other things that matter. They must do everything within their power to protect their businesses.

One of the reasons you need professional liability insurance is that general liability insurance does not protect claims arising from business transactions.

So, professional liability insurance is a shock absorber between your working in a professional capacity and the likelihood of financial loss to take place if your clients or other people using the premises sue you. 

In addition, personal liability insurance is usually operated on a claim-made basis. This means that you can only make claims when the policy is in force.

So, the insurance policy does not cover you if the time of insurance coverage has elapsed. Also, incidents that arise before the enforcement of the policy may not be covered, although in some policies, retroactive dates are factored in.

Most importantly, professional liability insurance is fairly easy with low-risk occupations. This does not mean that riskier occupations do not receive insurance coverage. However, it may require more money and conditions to cover such businesses.

Additionally, some professional liability policies are worded more tightly than others this means that some policies may factor in some clauses.

Others may exclude them while featuring another kind of incident. For instance, an insurance cover may include a breach of duty if the incident occurred and was reported by the insurer during the policy period.

Read this: What Is Commercial Insurance? Everything You Need To Know.

What is the Coverage of Professional Liability Insurance?

Professional liability can protect your business against claims such as the following:

  • Breach of a contract or missed deadlines
  • Errors or omissions
  • Failure to deliver a promised service when due
  • Failure to meet a standard of care or professional negligence

In general, professional liability insurance protects businesses against claims of financial loss only.

However, medical malpractice is not protected under this kind of insurance policy. Likewise, the following are not covered by professional liability insurance:

  • odily injury or property damage that customers may encounter while you are carrying a business transaction with them. An example is when a customer trips and falls while on your business premises
  • Lawsuits against employers by employees over injuries, wrongful termination of contract or harassment at the workplace
  • The vehicle used by a business 

What Set of Business Owners Need Professional Liability Insurance?

As long as you provide business service to the public for a fee, you need this type of insurance. Some of the professionals include:

  • Architects
  • Engineers
  • Accountants
  • Consultants
  • Investment/financial advisors
  • Software developers and graphic designers
  • Agents and brokers – insurance and real estate

As for medical professionals, they can take up a different kind of insurance that protects them against liability on clients.

It is called medical malpractice insurance. It specifically protects medical professionals against any mistake they made that resulted in a patient’s injury or death.

Therefore, medical professionals such as dentists, psychologists, physicians, among others can purchase a medical malpractice insurance cover.

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What are the Determinants of the Cost of Professional Liability Insurance?

The premium you can pay for this kind of insurance cover is determined by the following:

  • Your business location
  • The number of employees you have
  • The amount of coverage you actually want
  • Also, the frequency of lawsuits in your industry or business line
  • The kind of claim you may have failed in the past

What are the Typical Provisions in Professional Liability Insurance?

The typical claims include:

  • Claims-made coverage: This is also called claims-made policy. Several policies that are issued recently are written on a claims-made basis when the policy is in force. That is to say, there is no provision for a claim made after a policy expires, even if the supposed error is assumed to occur during the policy period. 
  • Occurrence policy: Also known as occurrence coverage. This policy covers claims of errors or omissions that take place during the policy period, even if the claim is made after the omission expires. That is because the insurance company is at risk for paying claims even after the expiration of the policy.
  • Duty to defend: Some policies make provisions for coverage for the costs of defending the insurance company against any suit made by the third party.
  • Indemnity: Some policies do not indicate payment of third parties by the insurance company. In other words, the insured would pay the third party from his pocket before asking for reimbursement from the insurance company.
  • Covered parties: Typical professional liability insurance must stipulate the parties covered by the policy. For instance, it may indicate that independent contractors may not be part of the individuals covered by the policy even if employees are involved.
  • Exclusions: This part indicates the excluded liability to be covered. Normally, professional liability insurance covers only negligence which means coverage does not extend to non-negligent or intentional situations. The policy may also exclude certain acts or risks from the coverage.
  • Professional services: Professional liability insurance may limit coverage to enumerated services or may extend it to the activities carried out by the insured company.
  • Extended period for reporting: Certain policies may extend the time within which a claim may be made for the policy. 

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What is The Time Constraints For Suing an Insurer By a Third Party?

State laws set the statute of limitations for third parties to file for a professional liability claim. At the termination of the statutes of limitation, third parties are prevented from filing any claim. Away from that, state laws govern the professional liability policy.

How Often is The Premium Paid By The Insured?

You can choose to pay your insurance premium once a month, quarterly, or once a year. However, it is more prudent to pay the premium once a year, since the insurance company offers discounts for bulk payment than when it is paid in installments every year.

Also, check this: Insurance Broker vs Insurance Agent: What’s The Difference In 2023

What Should a Policyholder Do if The Insurance Company Refuses to Pay The Claim?

Once the policyholder receives notice of liability, he or she should immediately notify the insurance company.

As a result, the insurer reviews the terms of the claim to determine if the policy provides coverage for the type of risk that occurred.

If the insurance company denies coverage even when the liability is covered, the policyholder may sue for the claim against the company.

Further, the insurer’s denial of the claim may be seen as a fraudulent case, intentional misrepresentation, and breach of contract. 

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Conclusion

In conclusion, professional liability insurance is a specialty coverage. You need it to carry out your business transaction.

One thing is certain, having it gives you a different level of peace, knowing full well that you will not be financially responsible for certain issues that may arise from business transactions. However, it does not mean you should be careless in your business activities.

References

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Chukwudumebi Amadi
Chukwudumebi Amadi

What’s up, I’m Dums. I help brands gain visibility through SEO Writing and other applicable Content Marketing Strategies.

My educational background includes a BSc in Mass Communication with a focus on writing for the New Media.

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