Running a small business takes a lot of hard work. Missed deadlines, clerical errors, and misunderstandings are just a few of the things that could lead to a client filing a lawsuit against your business. Professional liability insurance can help protect your business from mistakes.
What is professional liability insurance?
Also known as errors & omissions insurance (E&O), professional liability insurance may save you time and money if you are involved in a claim. But even more than that, it could help you sleep better at night knowing that your business could make a mistake and still come out unscathed.
Professional liability insurance helps protect your business if you are sued by a client, you provided services for. Mistakes happen, and those mistakes by you or your employees can lead to an angry customer who files a lawsuit for a negligent act, error, or omission. Even if you aren’t at fault, that doesn’t always stop an upset customer from filing a claim. It’s an inherent risk of owning a business, particularly if your profession can significantly impact your customer’s bottom line. In some occupations, professional liability insurance truly is a must. And some states require such insurance to operate.
Even if you aren’t at fault, that doesn’t always stop an upset customer from filing a claim.
What’s the difference between professional liability insurance and general liability insurance?
Both general and professional liability insurance exists to protect you and your business from the financial burden of claims of negligence. General liability insurance covers property damage and third-party bodily injury. It gives you basic protection if you find yourself responsible for injuring or damaging the property of a third-party individual, like a client, customer, or just a person who comes into contact with you or your business. Your general liability policy helps cover things like their medical bills, repair bills, and potential legal fees if they sue for something they think you’re responsible for.
On the other hand, professional liability insurance protects your business against negligent professional advice or services or alleged errors and omissions that typically include financial loss to the client. In this situation, no one is physically hurt, and there’s no physical property damage.
What does professional liability insurance cover?
Professional liability insurance helps pay for defense costs, settlements, and judgments if a dissatisfied client files a lawsuit against you. This insurance is designed to protect your business and cover claims of negligence, malpractice, misrepresentation, oversights, missed deadlines, and more. Professional liability insurance is essential for any business that advises individuals or other businesses or provides services that could impact the well-being of others.
While the type of coverage needed will depend on the plan you choose, most policies include coverage options for:
- Mistakes, errors, or oversights made by you or your employees
- Services that weren’t delivered on time (or at all)
- Miscommunication or misrepresentation
- Missing essential deadlines
- Claims of negligence
- Libel and slander
- Copyright infringement
- Legal fees
- Legal defense costs
What doesn’t professional liability insurance cover?
While professional liability insurance policies cover many situations, it doesn’t protect your business from everything, like third-party damages and personal injuries as a result of negligence. For that, you need general liability insurance.
I have an LLC. Doesn’t that protect me?
The acronym LLC stands for limited liability company. As the name suggests, the protection of an LLC is ‘limited in scope”. An LLC is created to protect your personal assets from any liabilities or debts that the business incurs. For example, an LLC prevents your personal assets from being seized to pay any debts that your business takes out and cannot repay. Unless, of course, you put up a personal guarantee when you took out the loan.1
It’s important to point out that an LLC does NOT protect you from:
- Wrongdoing or negligence
- Debt collectors, if you have provided a personal guarantee for a loan
- Not complying with state or federal laws
- Signing a contract as yourself instead of the representative of the business
- And many other risks that come with owning your own business
Who needs professional liability insurance?
If you are a freelancer or independent contractor, some businesses might require you to have professional liability insurance to work with them. But even if your clients don’t require errors and omissions insurance, it’s a good idea to protect your business. There may come a time when your clients aren’t happy with the results. If they believe that your advice led to damages or losses, they might file a claim against you — whether or not you are actually at fault.
In many professions, it’s not uncommon for minor errors to escalate into major problems with grave consequences. Mistakes by you or an employee, misunderstandings, or even other factors entirely outside of your control can easily lead to a client lawsuit, which is why it’s crucial to protect yourself where you can. Some professions that should unequivocally consider personal liability insurance include:
- Lawyers and attorneys
- Consultants and coaches
- Freelance service providers
- Accountants and tax professionals
- Financial advisors
- Home inspectors
- Personal trainers
- Massage therapist
- Medical practitioners
- Programmers and developers
- Real estate agents
Professional liability insurance for nurses
Professional liability insurance for nurses should be an automatic “duh!” The actions of a nurse could have ramifications that literally end in life or death. And even though doctors typically oversee nurses, a nurse can still be liable for a mistake in treatment or negligence. (The doctor and hospital could be liable too.) Here are a few examples of how a nurse’s error could land them in hot water:2
- Inadequate monitoring or observation of a patient
- Failing to respond to a patient’s call for assistance in a timely manner
- Not taking a patient’s vital signs at the proper times
- Improper medical record-keeping
- Not taking steps to prevent or identify bed sores
- Giving a patient the wrong food
- Administering the wrong medication
- Providing a patient with the correct medication, but at the wrong dose or the wrong intervals
- Inadequate adherence to post-surgery protocols
The above examples could be the result of an elementary mistake that leads to dire consequences. Regardless, the responsibility for proper care is with the nurse, which is why professional liability for nurses is essential.
Mistakes by you or an employee, misunderstandings, or even other factors entirely outside of your control can easily lead to a client lawsuit, which is why it’s crucial to protect yourself where you can.
Errors and omissions insurance for real estate
Professional liability insurance for real estate agents might not be as apparent as professional liability insurance for nurses, but it is just as critical. Buying real estate can be a big decision, which is why clients depend on their real estate agents to point them in the right direction and offer advice. If a real estate agent fails to disclose a defect they knew about, or if they made another mistake, they could be held liable.
Real estate agents should consider errors and omissions insurance to be protected. Below are a few examples of mistakes in real estate that might occur, and even if they don’t happen, that doesn’t mean a client won’t think they did and decide to sue.
- Failing to disclose a defect you knew about
- Misleading a client
- Breach of contract
- Bodily injury
You might not intentionally mislead a client, and you might not be able to control someone tripping at an open house you are hosting and suffering a bodily injury. That’s why you need to make sure you protect your business with professional liability insurance.
Professional liability insurance for attorneys
Professional liability insurance is one of the most common types of insurance for law firms and attorneys to carry to protect your business. The issue of malpractice insurance, aka professional liability insurance for attorneys, has been around since the late 1970s when skyrocketing malpractice insurance premiums led to one state, Oregon, making malpractice insurance a legal requirement for all practicing lawyers in the state 3. Since then, different states have implemented various requirements for attorneys to have professional liability insurance because they understand that mistakes or oversight by an attorney could have catastrophic implications for their clients.
In Alaska, Ohio, and New Hampshire, attorneys must notify clients in writing if they have no malpractice insurance or if their coverage is less than $100,000 per claim and $300,000 aggregate. In South Dakota, attorneys must specify in their letterhead if they have no malpractice insurance or if their coverage is less than $100,000 per claim. In Delaware, Virginia, Nebraska, and North Carolina, each state requires annual certification, either to the state’s mandatory bar or the state supreme court, that an attorney does or does not carry malpractice insurance. No minimum limits are required.4
Even if you operate in a state that doesn’t require professional liability insurance, that doesn’t mean it is not needed. A busy law firm can make mistakes without even realizing it, such as:
- Misfiled or late paperwork
- Failure to know the law
- Errors in planning
- Inadequate investigation
- Failure to follow instructions or obtain client consent
- Conflicts of interest
And, even if you don’t make a mistake, a client can still be disappointed with your work product or the outcome of a case and decide to sue you.
How much does professional liability insurance cost?
There’s no set price tag for professional liability insurance cost, since it varies based on your specific business, as well as other factors like your location and business history. Here is a list of the factors taken into account to calculate the cost of professional liability insurance.
- Type of business: Since some industries are at a higher risk of lawsuits, the nature of your work may influence your insurance premiums.
- Location: If you’re located in a bigger city, your premium may be higher.
- Business size: The more employees and clients you have, the more likely you are to have a negative experience with a client that ends with a lawsuit. This may cause the cost of your insurance to fluctuate.
- History: Have you been involved with claims in the past? If so, your premium might be a little bit higher. The number of years your business has been running also has an influence.
- Your coverage limits will also impact how much you can expect to pay for professional liability insurance.
If professional liability insurance cost is preventing you from buying errors and omissions insurance, just think about how much more money you would have to spend if you didn’t have it and were sued for negligence. If you’re interested in obtaining professional liability insurance to protect your business, we can help. Woligo is dedicated to connecting self-employed workers and independent contractors with the right insurance and benefits options for them.
If professional liability insurance cost is preventing you from buying errors and omissions insurance, just think about how much more money you would have to spend if you didn’t have it and were sued for negligence.
Errors and omissions insurance is a must
Professional liability insurance for nurses, personal trainers, accountants, consultants, and many other occupations truly is a must to protect your business. You’ve worked hard to build your own business. You had to learn skills, build up your clientele, and probably take some significant risks to get where you are now. But now that you’ve secured your own business why risk it? You can’t always control when accidents or mistakes occur.
The professional liability insurance cost far outweighs the financial burden that could arise from a mistake you or an employee could make. Professional liability insurance for nurses, attorneys, personal trainers and other occupations that provide services or advice is just common sense. Make sure you protect your business by investing in errors and omissions insurance today.
Sources:
- What Does an LLC Protect you From? | GovDocFiling
- What Is Nursing Malpractice? Can I Sue a Nurse for Medical Malpractice? | AllLaw
- https://www.americanbar.org/groups/bar_services/publications/bar_leader/2003_04/2804/malpractice
- https://www.americanbar.org/groups/bar_services/publications/bar_leader/2003_04/2804/malpractice/