Professional liability insurance
Professional liability insurance
This policy, also known as errors and omissions insurance, protects businesses against client lawsuits claiming that work was unsatisfactory, negligent, late, or never completed.
Why do you need professional liability insurance?
Professional liability insurance, also called errors and omissions insurance or malpractice insurance, is designed for businesses that make a living by providing professional services or advice.
Even the most experienced and thorough professional service provider makes mistakes. Unfortunately, clients may not be so understanding if your error costs them considerable time or revenue.
Professional liability insurance coverage helps protect you from unsatisfied clients. For example, if you miss a project deadline, make an omission in your work, or provide ineffective business advice, your client may sue.
If you’re served with this type of lawsuit, your professional liability insurance policy will cover legal defense costs up to your policy limit.
Professional liability covers:
- Work errors and oversights
- Undelivered services
- Incomplete work
- Missed deadlines
- Budget overruns
- Breach of contract
- Accusations of negligence
What does professional liability insurance cover?
It's inevitable that you will come across unsatisfied customers. However, when a customer claims your mistake or negligence cost them revenue, you may end up in court.
Professional liability coverage protects you against:
Work mistakes and oversights
Sometimes a simple mistake can cause one of your clients to lose money. When a client sues over an error made by your business, professional liability insurance can help pay for your legal defense costs and more.
Undelivered services
If your business promises to provide a service and fails to deliver, a client could sue – especially if it negatively impacts the client’s bottom line.
Accusations of negligence
If your business is accused of negligence, such as failing to meet industry standards, then it could face a professional liability lawsuit.
Missed deadlines
If a professional misses a deadline, it can have tremendous repercussions for a client. Professional liability insurance provides protection when a client sues over late or incomplete work.
How much does professional liability insurance cost?
Professional liability policyholders pay on average $61 per month, or $735 a year, for coverage. Your exact cost may be more or less depending on your risks.
The cost of professional liability insurance is based on several factors, including:
- Policy limits
- Deductible
- Location
- Level of risk
- Number of employees
- Business experience
- Claims history
Who should get professional liability coverage?
If your small business provides any type of professional service or advice, you should get professional liability insurance coverage.
By providing these services or advice, you're at risk of a client accusing you of unsatisfactory work, including missed deadlines. If a client sues, the costs can cause severe financial damage to your small business—whether or not you’re at fault.
Any small business owner that makes a living by providing their expertise only benefits from carrying this policy as part of its risk management plan. And that’s even more true if your work or advice could potentially cause a client financial loss.
That's why professional liability is especially key for technology and software businesses, including:
IT professionals
Professional liability protects IT professionals from lawsuits over contract disputes, missed deadlines, and more. Some clients will require IT companies to prove they have an active professional liability policy before they agree to work with them.
For example, an IT consultant promises a real estate company that it will improve its profits by 20% by a certain date. When the date arrives, profits have gone up, but not as much as projected. The company sues the IT consultant over its financial troubles. Professional liability insurance helps cover the consultant’s defense fees.
Software developers
Professional liability for software developers covers lawsuits over software bugs, coding errors, or programs that don't meet client requirements.
For instance, suppose a software developer signs a contract to create a new employee onboarding program for a healthcare company. However, the client is not pleased with the end product and sues for inadequate work. Professional liability insurance would cover the software developer's legal costs.
Cybersecurity experts
A professional liability policy helps cybersecurity experts by paying for any mistakes that might come up. This includes software that don't meet client standards, failure to deliver a resolution on time, or coding errors in security software.
For example, suppose a cybersecurity professional signs a contract to install a security program, but due to a coding error, the program provides inadequate security and leaves the client at risk. Professional liability coverage would then provide financial protection if the client sues for unsatisfactory work.
App developers
App bugs or glitches and missed deadlines are common mishaps that app developers face. Professional liability insurance offers protection against these risks.
For example, an app developer builds an iPhone app for a big tech company. After the app's release, it becomes clear that the app performs poorly on certain devices due to mistakes in the code. The tech company sues the app developer over the issue. A professional liability policy would then cover the app developer's legal costs.
Web designers
Professional liability coverage provides protection for websites that don't meet clients' expectations or are completed late. It also cover lawsuits related to web design mistakes, including broken links and other design mistakes.
For instance, a web design company is tasked with building a new website for an e-commerce company. When the project takes longer to complete than promised, the e-commerce company sues the web design company over the potential lost profits. Professional liability insurance would help pay for attorney's fees and any other legal costs.
IT staffing firms
IT staffing firms face numerous professional liability risks, including claims of negligence.
For example, an IT staffing firm supplies an employee to a large tech company for a role in database administration. The employee lacks the basic skills necessary to fulfill the role, but the company only finds this out after signing a contract. The tech company sues the staffing firm for claims of negligence. A professional liability policy would then cover the cost of the negligence lawsuit.
If your business offers expert advice or provides professional services, you should strongly consider professional liability insurance to protect your company from costly lawsuits. Here’s why you may need this coverage, when it’s required, and how it can safeguard your business.
What isn't covered by errors and omissions insurance?
Professional liability protects your small business against financial costs from unsatisfactory work, but it doesn't cover all risks associated with running a business.
To fully safeguard your small business, you should get other business insurance policies to protect against these common risks:
Customer injuries or property damage
If a customer is injured on your premises or you accidentally damage a customer’s property, general liability insurance can help pay for medical expenses or the cost of repairing or replacing the damaged item. It can also cover legal expenses if the customer sues.
Employee injuries
Workers' compensation insurance covers medical expenses and partial lost wages for employees with work-related injuries or illnesses. It is required in most states when you hire your first employee.
Damage to business property
A business owner's policy (BOP), which combines general liability insurance with commercial property insurance, protects business property, including computers and furniture. This includes covering the cost of repairs or replacement if inclement weather damages your building or if a thief steals valuable equipment.
A BOP usually costs less than purchasing the policies separately.
Employee discrimination lawsuits
Employment practices liability insurance (EPLI) covers lawsuit expenses related to claims of harassment, discrimination, and wrongful termination. For example, if a female employee at a cloud computing business sues for wrongful termination based on gender, EPLI would cover legal expenses.
Vehicles used by a business
In most states, business-owned vehicles are usually required to be covered by commercial auto insurance. This policy provides protection if your business vehicle is involved in an accident.
Personal or leased vehicles used by a business should be covered by hired and non-owned auto insurance.
Cyberattacks and data breaches
Cyber liability insurance can pay for legal expenses, credit monitoring services, and other recovery costs if a data breach or cyberattack affects your company or your clients.
Other common questions about professional liability insurance
How do you get a certificate of insurance?
TechInsurance is a trusted insurance expert for all small businesses, including contractors and consultants, with extensive knowledge of the IT sector.
With TechInsurance, you can easily download a certificate of liability insurance for your small business, often on the same day you buy errors and omissions coverage or another insurance product. TechInsurance insurance agents are available to help you with this process.
This comes in handy for companies and consultants that need proof of insurance to sign a contract or a lease and don’t have time to call an insurance company for documentation. Clients and landlords may ask for a certificate of professional liability insurance to show you’re insured.
Why is it important to keep your professional liability insurance policy active?
Though it may be tempting to drop your professional liability coverage to save money, maintaining your professional liability coverage is key to keeping your business protected and having peace of mind.
Many professional liability insurance policies are written on a “claims-made” basis with a retroactive date. This means that in order to collect your insurance benefits, your professional liability policy must be active:
- When an alleged mistake occurs, and
- When the claim is filed
With a claims-made professional liability policy, your coverage kicks in only when you file a claim during the policy period. Continuous coverage is a must if you don't want to pay out-of-pocket for lawsuits.
Is there a difference between errors and omissions insurance and professional liability insurance?
The short answer is no. Different industries use different terms for the same type of coverage.
Professional liability insurance and errors & omissions (or E&O insurance) are essentially identical, except for the name. In the medical field, this policy is commonly known as medical malpractice.
Read more about the differences between errors and omissions insurance and professional liability.
What's the difference between general liability insurance and professional liability insurance?
General liability insurance and professional liability insurance both protect against common small business liability claims, but they cover different types of lawsuits.
A general liability policy covers customer bodily injuries, customer property damage, and advertising injuries. In contrast, professional liability insurance covers any legal defense costs when a client or customer suffers a financial loss due to your professional services or advice.
You can bundle general liability insurance with commercial property insurance in a business owner's policy (BOP). By bundling the two together, you can save money.
What are some exclusions to a professional liability policy?
Professional liability insurance has some coverage exclusions. For instance, it doesn't pay for lawsuits that allege client discrimination or abuse.
It also only covers the cost of defending against lawsuits. It does NOT pay for lawsuits you initiate. For example, this policy won't cover your legal costs if you sue a client who refuses to pay you.
Unless your policy has prior acts coverage, it only covers claims filed while the policy is active and for incidents that occurred after you bought the policy.
Endorsements can fill gaps in your professional liability coverage. To make sure you have the coverage you need, contact a TechInsurance agent.