No business wants to think they might be at risk for a professional liability lawsuit. In an ideal world, most businesses would have happy and satisfied customers because their needs were met properly and completely. In reality, however, even highly skilled professionals with the best of intentions can make missteps and find themselves in a situation where they’re accused or guilty of errors in judgment, negligence, malpractice, or misrepresentation.
Professional liability insurance steps in as a safety net to protect professionals and their businesses from these types of unintended consequences.
What Is Professional Liability Insurance?
Even with proper training and planning, human errors are a reality of life — a doctor’s office mismanages patient files and violates HIPAA by exposing patient information, a wedding planner fails to secure a client’s wedding venue for the correct date and the unhappy couple sues, or a lawyer misses a deadline to file critical paperwork for a client. If any of these situations result in a lawsuit, professional liability insurance helps cover attorney’s fees, settlement costs, court fees, and court judgments.
What falls under the broad category of “professional liability” can vary from carrier to carrier. However, in general, the term typically encompasses all financial lines, including directors and officers insurance (D&O), employment practices liability insurance (EPLI), errors and omissions insurance (E&O), and cyber liability.
Who Needs Professional Liability Coverage?
While most professions could benefit from professional liability insurance, it’s a necessity for businesses that provide professional services and advice. This includes:
- Medical professionals
- Accountants and financial advisors
- Software companies and IT specialists
- Digital service providers
- Real estate agents
- Insurance brokers
. . . and many more
Prime Examples of Professional Liability Insurance Claims
In general, most professional liability lawsuits arise from the professional’s failure (real or alleged). This can vary widely across professions and industries.
- Mistakes, Errors, and Oversights: A tax preparer makes a mistake while preparing their client’s federal return and miscalculates what the client owes. Now the client not only owes additional taxes beyond what they expected, but they also owe a late fee and interest. The tax preparer’s professional liability policy reimburses the client for the late fee and interest.
- Professional Negligence: A lawyer fails to file a lawsuit within the statute of limitations window for a client’s case. The client is no longer able to proceed and the case is dropped. The client, understandably angry with their lawyer, sues for negligence. The lawyer’s professional liability insurance covers their legal fees and settlement expenses.
- Breaches of Contract: A web designer agrees to a certain set of requirements for a client’s website. The designer delivers her work on time and according to the requirements outlined in her contract. Her client, however, has unrealistic expectations for the work and sues the web designer, accusing her of breach of contract. Although the court ultimately rules in the web designer’s favor, she still has to pay for legal representation, which her professional liability insurance covers.
- Professional Misconduct: A consultant decides to have a couple drinks at lunch, forgetting he has an important afternoon meeting with a client and the client’s potential investors. The consultant arrives at the meeting intoxicated. His speech is slurred and his presentation is confusing. His client’s investors are worried about the future of the project and decide to back out of funding conversations. The consultant’s client blames him for the lost funding and sues the consulting firm for damages. The firm settles out of court and their professional liability insurance kicks in to cover their legal expenses and a large portion of the settlement amount.
- Missed Deadlines: A contractor fails to meet the agreed upon deadline to complete a building project for a large business. As a result, the building is unable to open on time, resulting in significant cost and reputational harm to the business. The business sues the contractor for not meeting their professional obligation. The contractor is pummeled by substantial legal fees and a large jury award, but their professional liability coverage helps cover these costs.
What Professional Liability Doesn’t Cover
Although professional liability insurance can offer your clients a strong safety net for certain situations, it’s critical that they understand their policy’s limitations. Professional liability insurance does not cover:
- Intentional wrongdoing
- Sexual harassment or sexual misconduct
- Employee injuries (this is covered by workers’ compensation)
- Damage to personal or company property (this falls under general liability policies)
Professional Liability Coverage May Require an Expert Broker
Professional liability coverage is often intricate and nuanced — especially when policies are for insureds with large, complex business operations and unique risk profiles. In addition, the Professional liability forms themselves are all unique and not standardized through the Insurance Service Office (ISO), because they’re customized and tailored to the insured’s individual business risks and coverage needs.
By working with a wholesale broker who specializes in professional liability, retail agents can eliminate a lot of time and frustration. More importantly, they can avoid situations where an unexpected policy term or buried exclusion leads to a damaging situation for their client.
For instance, if a broker doesn’t know what to look for when reviewing policy quotes, they might miss the fact that a policy contains exclusions for activities that are essential to the insured’s business operations. This could lead the insured to unknowingly purchase a policy that doesn’t provide the necessary coverage, resulting in a future insurance claim being denied.
A mistake like this can be costly for both the insured and their agent. If the insured was sued for some sort of professional negligence or error, they could be on the hook to cover all damages and expenses, without any financial buffer from insurance. In response, the insured could hold their retail agent responsible for letting them buy a policy with coverage gaps.
As a retail agent, partnering with expert wholesale brokers can help you avoid common pitfalls and coverage challenges to ultimately keep you from having to make an E&O claim on your own professional liability policy.
At Jencap, we have an entire group of professional liability specialists ready to partner with you to meet your clients’ needs. Our experts focus exclusively on the intricacies of professional liability risks and products. By tapping into their deep knowledge and strong carrier relationships, you can be confident that your clients are getting the best coverage available at the most competitive price. Contact us today to learn more.