2014

Professional Liability Insurance

What is Professional Liability Insurance?

Miscommunication and mistakes – and sometimes just plain old bad luck – can quickly transform a great client relationship into one big heated yelling match. Professional Liability Insurance, in this case, is like the friend who always has your back (but prefers to end fights on peaceful, friendly terms).

Also known as Errors and Omissions Insurance, Professional Liability Insurance is coverage that can help offer aid when a client or customer claims that your business…

  • Failed to provide promised services.
  • Was negligent in rendering its professional services.
  • Provided shoddy, incomplete, or incorrect work.
  • Made mistakes or oversights.

To put it another way, it's the insurance you want when someone claims you didn't do your job. The coverage will depend on what your job actually is and what you're hired to do.

Whether you're accused of losing client data, causing a major system crash, or failing to deliver an agreed-upon product, Professional Liability Insurance may offer funds to let you resolve the matter through a settlement or in the court room, protecting your business from potentially devastating legal bills.

Professional Liability Insurance for IT: An Expert's Best Friend

As an IT professional, your work is second nature to you, of course. But to a lot of people, you might as well be performing magic. They rely on your expertise and professionalism when they decide to hire you for a job. That puts a lot of responsibility on your shoulders – especially when something goes wrong.

But you don't have to carry this burden by yourself. When a client or customer claims that your business caused them a financial loss, technology Professional Liability Insurance helps cover the legal costs that arise. These legal costs could include…

  • Attorneys' fees.
  • Court costs.
  • Settlements.
  • Judgments.

This coverage also extends to frivolous claims, meaning you're covered for legal costs whether you're actually at fault or not.

Professional Liability Insurance can also cover claims resulting from work carried out by your employees, as well as 1099 contractors working on your behalf. Be sure any subcontractors you use also carry their own Professional Liability Insurance. Your policy may not defend them if they're sued separately or in addition to you.

How Can Professional Liability Insurance Help My Business?

The easy answer is that it allows you to get work. Often, carrying Professional Liability Insurance is a requirement for landing a contract with a client, especially with large or complex IT projects.

But the longer answer is that it allows you to work with peace of mind, giving you confidence that you have backup if something goes wrong. Without the coverage that Professional Liability Insurance provides, a lawsuit over your professional work could be a catastrophic blow to your business. Defending against a lawsuit is expensive, but it's also time-consuming and intense. Most businesses don't have the resources on hand to deal with an unexpected challenge like that.

For more detailed information on how Professional Liability Insurance works, download our free eBook Errors & Omissions Insurance for IT Freelancers, Contractors, and Small Businesses: The Definitive Guide.

Packaged Coverage at Discount Rate

-- with the Business Owner's Policy

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Professional Liability Lawsuits in Action

Negligence Claim

While transferring data to a cloud-based system, a database engineer accidentally loses valuable sales records and contact lists. He's sued for negligence by the owner of the database, but his insurance covers the legal expenses and settlement.

Advertising Injury / Copyright Infringement Claim

A software developer creates a mobile app for a food-delivery business, but the client is later accused of copyright infringement when a competitor claims that its code was stolen and used in the app. The competitor sues the food-delivery business, and the food-delivery business, in turn, sues the developer. It was her work, they argue, that originally caused the copyright infringement. Her Professional Liability policy includes intellectual property liability coverage, so it provides the funds she needs to hire a lawyer for her defense.

Omissions Claim

An IT consultant forgets to update an online retailer's software, even though this service is written out in their contract. The omission of this service results in the software crashing, preventing the business from making any sales for a day until the issue is fixed. The business attempts to recoup its losses by making a claim against the consultant, whose insurance helps pay for the damages.

Frivolous Lawsuit

A difficult client misinterprets a data analyst's report and makes a decision that ends up costing his company tens of thousands of dollars. Blaming the analyst for the entire loss, he files a lawsuit. The data analyst didn't do anything wrong, but he still has to resolve the lawsuit by hiring a lawyer. His Professional Liability Insurance helps him do that.

How Much Does Professional Liability Insurance Cost?

For IT businesses, the cost of Professional Liability coverage will depend greatly on what services you provide and how big your business is. Many small businesses choose a policy that offers a $1 million coverage limit. The premium for this coverage is typically $800 to $1,000 per year. For more information, check out our page that answers "How much does Errors & Omissions Insurance cost?"

Professional Liability Related Resources