While your commercial general liability insurance protects your business if your work causes property damage or bodily injury, it does not provide protection for any economic losses your clients may experience due to mistakes or negligence in your work.
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Professional liability insurance (PLI), also called errors & omissions (E&O), is a form of liability insurance which helps protect professional advice- and service-providing individuals and companies from bearing the full cost of defending against a negligence claim made by a client, and damages awarded in such a civil lawsuit. The coverage focuses on alleged failure to perform on the part of, financial loss caused by, and error or omission in the service or product sold by the policyholder. These are causes for legal action that would not be covered by a more general liability insurance policy which addresses more direct forms of harm. Professional liability insurance may take on different forms and names depending on the profession, especially medical and legal, and is sometimes required under contract by other businesses that are the beneficiaries of the advice or service.
Coverage sometimes provides for the defense costs, including when legal action turns out to be groundless. Coverage does not include criminal prosecution, nor a wide range of potential liabilities under civil law that are not enumerated in the policy, but which may be subject to other forms of insurance. Professional liability insurance is required by law in some areas for certain kinds of professional practice.
While your commercial general liability insurance protects your business if your work causes property damage or bodily injury, it does not provide protection for any economic losses your clients may experience due to mistakes in your work. Your clients could still sue you for their economic or financial losses, which is where professional liability insurance steps in.
Professional Liability Insurance provides protection against lawsuits arising from:
With Professional Liability Insurance, you’ll be covered for any judgments against your business for these types of lawsuits, as well as the costs for legal defense against these claims. This insurance covers you, your business, your employees, and independent contractors while they are working for your business.
Professional Liability Insurance covers your business if a dissatisfied client sues you for professional errors or negligence. It does not protect you from the following scenarios:
The primary reason for professional liability coverage is that a typical general liability insurance policy will respond only to a bodily injury, property damage, personal injury or advertising injury claim. Other forms of insurance cover employers, public and product liability. But various professional services and products can give rise to legal claims without causing any of the specific types of harm covered by such policies. Common claims that professional liability insurance covers are negligence, misrepresentation, violation of good faith and fair dealing, and inaccurate advice. Examples:
There are two limits that come with Professional Liability Insurance: occurrence and aggregate. The occurrence limit is the maximum amount the insurer will pay for any one claim made during the life of the policy. The aggregate limit is the maximum amount the insurer will pay in claims for the lifetime of the policy (usually one year). Limits are presented as occurrence/aggregate. For example, a $2M/5M policy will pay up to $2 million for any one claim made during that period and up to $5 million for all claims during the policy’s lifetime.
Policy limits play a large role in the overall cost of Professional Liability Insurance. You may choose a limit based on your risk exposure, or you might opt for coverage with higher limits because of contractual obligations to your client.
The cost of Professional Liability Insurance depends on a number of factors, including the type of business you run, your industry, coverage limits, location, and number of employees. While the range of pricing can vary widely, most small business owners can expect to pay annual premiums between $400 and $1,000.
For most small businesses, a $1 million per occurrence and $1 million aggregate limit in Professional Liability Insurance is appropriate, but this is highly dependent upon your industry and the risks your business faces.
Regulating Agency and References
Insurance Information Institute (III)
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