Do You Need Professional Liability Insurance? Here's How to Decide

You strive to give customers the service they deserve. Unfortunately, mistakes and misunderstandings happen. While general liability insurance covers physical injury, property damage, and reputational harm, professional liability insurance (or errors and omissions insurance (E&O)) is specifically designed to protect against claims of faulty advice, mistakes, or situations where you fail to deliver acceptable service.

For example, an E&O claim might be triggered by a misdiagnosis in healthcare. An accountant may face a claim due to a financial statement error or a tax filing that triggers an audit. A client could sue a realtor for failing to disclose property defects.

While every claim is unique, a traditional insurance policy typically does not cover these errors and omissions. Wondering if you need more robust business insurance? We’ll help you decide.

Who Needs Professional Liability Insurance?

If you are giving advice or providing professional service for a fee, we recommend carrying professional liability insurance. These policies are must-haves for lawyers, accountants, architects, IT professionals, healthcare professionals, realtors, and consultants, to name a few.

While California does not require business owners to carry E&O insurance, we highly recommend it for any business that provides a professional service. A single claim of negligence or error can result in financially devastating legal fees and damages.

What Isn’t Covered By Professional Liability Insurance?

Professional liability insurance does have limitations and will not protect against every type of claim. Exceptions include:

• Intentional wrongdoing, criminal acts, or fraud: Professional liability insurance does not cover situations where a business owner knowingly gave poor advice or intentionally deceived a client
• Bodily injury or property damage: Injuries that occur on the premises of your business would not fall under the scope of professional liability insurance. Instead, these would be covered by general liability and worker’s compensation policies.
• Discrimination: Discrimination based on race, nationality, disability, sex, age, sexual preference, and marital status is not covered by professional liability insurance.
• Employee-related claims: Claims triggered by wrongful termination, discrimination, failure to promote, demotion, and other disciplinary actions are not covered by professional liability insurance.
• Environmental damage: Professional liability insurance typically does not cover pollution and environmental exposures.

Choosing a Policy: Factors Worth Considering

When selecting a professional liability insurance policy, consider:

Your Profession

Every profession poses unique risks. Consider the nature of the industry, the products or services, and the customer base you serve. Identifying your industry’s unique risks will help you select and customize a policy that provides adequate coverage.

Policy Limits

Every policy has a cap—a maximum amount insurers will pay for a covered claim. When deciding on policy limits, consider your assets and the potential financial impact a claim could have on them. We often ask clients to imagine worst-case scenarios and advise them to choose a policy that would adequately protect their assets in such situations.

Deductible

This is the amount you agree to pay out-of-pocket before your liability insurance kicks in. In general, the higher the deductible, the lower the monthly payment. When choosing a deductible, consider your cash reserves and financial stability to ensure you can comfortably cover the deductible amount if necessary.

Scope of Coverage

Every policy is unique and generally customizable. Some policies offer broad coverage and may even cover claims triggered by past errors and omissions. Others may only cover claims that arise after your new policy is in place. Talk to our team about your policy’s scope of coverage—specifically exclusions that may limit your protection.

Your Trusted Partner in Professional Liability Insurance

When our founder, Jerry Hoffman, started our agency in 1959, he pledged to do things differently. That means competitive pricing, customizable policies catering to various personal and professional needs, and total transparency. Our goal?

To provide the best, affordable coverage while ensuring you understand the ins and outs of your professional liability policy—before you ever need to use it. Contact us today to learn more!