What Does Professional Liability Insurance Cover?
Professional liability insurance (PLI), also known as errors and omissions (E&O) insurance, protects professionals and businesses against claims of negligence or mistakes made in their work. This coverage includes:
- Professional Negligence: Claims from failing to meet professional standards.
- Errors and Omissions: Mistakes or oversights in professional services.
- Defense Costs: Legal fees and court costs for covered claims.
For example, if a financial advisor gives incorrect investment advice leading to client losses, PLI can cover the legal defense and settlements or judgments awarded to the client.
Coverage Details
Let’s go into more details on what PLI covers:
1. Professional Negligence
PLI protects against claims of failing to meet professional standards. This includes situations where a client alleges that your professional advice or services caused them financial harm due to negligence or incompetence.
Example Scenario
An architect designs a building that does not meet code requirements, leading to financial losses for the client. PLI would cover the legal defense and settlements.
2. Breach of Contract
PLI also covers claims arising from not fulfilling contractual obligations. If your business fails to deliver services as agreed in a contract, and this failure results in financial loss for your client, PLI can help cover the associated costs.
Example Scenario
A consultant fails to deliver a project on time, causing the client to incur extra costs. The insurance would cover the claim.
3. Errors and Omissions
This insurance provides protection against mistakes or oversights in professional services. It ensures that if you make an error in your work or omit crucial information, resulting in client losses, your policy will cover the legal and settlement costs.
Example Scenario
A financial advisor makes an error in investment advice, resulting in client losses. PLI covers the resulting legal expenses and settlements.
4. Defamation Claims
PLI also covers claims of libel and slander. If your business is sued for allegedly making false and damaging statements about a client, this insurance can cover the legal defense and settlements.
Example Scenario
A marketing firm is sued by a competitor for allegedly making false and damaging statements about them in an ad campaign. The competitor claims these statements harmed their reputation and business. PLI covers the marketing firm’s legal defense costs and extra expenses, ensuring financial protection against the defamation lawsuit.
5. Defense Costs
Professional liability insurance covers defense costs, including legal fees, court costs, and settlements. This ensures that even if a claim is frivolous, your business is protected from the significant financial burden of legal expenses.
Example Scenario
An IT consultant is sued by a client who claims their advice led to a data breach. Even though the claim is frivolous, the consultant faces significant legal expenses. PLI covers the legal fees, court costs, and extra expenses, protecting the consultant from financial burden.
PLI Exclusions
Criminal Acts
Professional liability insurance does not cover any intentional wrongdoing or fraudulent acts. This exclusion means that if a claim arises from criminal activity or intentional fraud, the insurance policy will not provide coverage for defense costs or any resulting settlements.
Employee Injuries
Claims related to employee injuries and other internal employment disputes are also not covered under professional liability insurance. These types of claims fall under workers’ compensation insurance, which specifically addresses workplace injuries and illnesses.
Property Damage
Professional liability insurance does not cover property damage. Claims involving property damage require general liability insurance, which is designed to cover physical damage to property as well as bodily injury incidents.
Discrimination Claims
Discrimination claims are typically not covered by professional liability insurance. These claims generally require additional coverage through employment practices liability insurance (EPLI), which addresses issues such as discrimination, harassment, and wrongful termination in the workplace.
General Liability Vs. Professional Liability Insurance
While doing your research, you may be wondering what does professional liability insurance cover that general liability insurance cannot?
A general liability policy will cover the costs of bodily injury, personal injury, and property damage claims that may arise when someone gets into a fender bender in your parking lot or twists their ankle on steps leaving your office. As the name suggests, general accidents or damages that happen outside of the scope of work you have completed.
Professional liability insurance covers claims made against the services you have provided. While we all strive to give every person we do business with exceptional service, there are times when errors happen or you are not able to fulfill the expectations laid out in your contract due to unforeseen circumstances.
PLI insurance protects you from the responsibility of covering the legal fees of the person suing you and from any financial damages they may be awarded if the civil case does not go in your favor.
If you’re still unclear about which type of claim would fall under which category, review these common claim examples:
| General Liability | Professional Liability |
| A client trips in your lobby, breaking their foot, and wants to be reimbursed for their medical fees. | A client claims their building renovation has been delayed due to poor project management and is suing for financial losses. |
| Your employee breaks an antique at a client’s home while moving furniture to bring in equipment. | You failed to inform a client of a filing deadline to appeal their judgment, and they are now suing you for negligence. |
| You share an image to social media of a completed iron fence in a client’s yard without their permission, and they file a personal injury claim due to invasion of privacy. | You arrive late to provide photography at a wedding, missing critical events, and the couple sue for breach of contract. |
Who Needs Professional Liability Insurance?
Professional liability insurance is essential for a variety of professions, including:
- Lawyers
- Accountants
- Financial advisors
- Architects
- IT consultants
- Healthcare professionals
Why?
These professionals need professional liability insurance because their work involves providing specialized services or advice, which carries the risk of errors or omissions that can lead to significant financial losses for their clients. For example:
- Lawyers: Can be sued for legal malpractice if they fail to provide competent representation.
- Accountants: May face claims for errors in financial reporting or tax preparation.
- Financial Advisors: Can be held liable for giving poor investment advice, resulting in financial losses.
- Architects: Risk claims related to design flaws or project management failures.
- IT Consultants: Might be sued if their advice or implementation leads to a data breach or system failure.
- Healthcare Professionals: Require protection against malpractice claims resulting from patient treatment errors.
Professional liability insurance provides these professionals with financial protection and peace of mind, allowing them to focus on their work without the constant worry of potential litigation. It covers legal defense costs, settlements, and any awarded damages, ensuring that even if a claim is made, they can continue their practice without devastating financial impact.
Protect Your Career with Professional Liability Insurance
Protecting your career and business with professional liability insurance is essential. For professionals whose work depends on providing expert advice and services, understanding the coverage options available is crucial. Professional liability insurance (PLI) and errors and omissions (E&O) policies can offer the protection you need against claims of negligence, mistakes, and other professional risks.
To learn more about how these policies can safeguard your professional reputation and financial stability, speak with an experienced commercial insurance carrier in Nevada. Harris Insurance is here to help you navigate your options and find the best coverage for your specific needs. Contact an agent today to ensure your business is protected against potential claims and legal costs.
