Professional Liability Insurance Policy Information
Professional Liability Insurance. Our society is a litigious one, and if you are a professional doing business in today's world, then you need to be prepared for claims and lawsuits that can wreak financial havoc on your personal assets. A professional liability policy, aka errors and omissions (E&O) is a must for all professionals, including medical professionals, who are among the most likely type of professionals to be targeted by litigants. With more than $3.3 billion paid out in calendar year 2013 to claimants in medical lawsuits, it makes sense to insure yourself with the most comprehensive professional liability insurance possible.
Medical professionals are not alone in their plight. Lawyers, attorneys, and others in the legal profession are quickly becoming a target for litigation. Every attorney in practice today has a 17 percent chance of being the center of a litigious suit in any given year, according to the American Bar Association.
Professional liability insurance protects your practice from negligence lawsuits with rates as low as $37/mo. Get a fast quote and your errors and omissions (E&O) insurance now.
How Much Does Professional Liability Insurance Cost?
The average price of a standard $1,000,000 Professional Liability Insurance policy for small businesses ranges from $37 to $99 per month based on location, industry, size, payroll, sales and experience.
About Professional Liability Insurance
Professional liability provides protection for financial damages suffered by business' client. Unlike commercial general liability E&O provides protection primarily for financial damages, but doesn't typically cover bodily injury or property damage.
No professional is safe from a liability claim. Any person whose job is to provide guidance or advice can end up being sued. Professionals who are common targets include architects, consultants, designers, accounting professionals, financial advisers, and practitioners of wellness and health practices. Even knowing the inherent risks of their fields, a lot of professionals forego the purchase of errors and omissions (E&O), and many find themselves wishing that they had.
While most people know what medical malpractice insurance is, many have never heard of professional liability insurance. While its specific definition varies based on which profession is seeking insurance, it usually protects against liability from errors and omissions made by professionals when providing professional services to clients. Essentially, professional liability insurance covers negligence or mistakes that cause your client's financial loss. It is a different type of policy than property damage insurance or bodily injury coverage.
In addition to covering awards for claims (up to the declared limits of the policy), a professional liability insurance policy also covers any associated legal costs. Since defending yourself in court can come with astronomical legal fees, sometimes running $100K or more, this errors and omissions insurance can be a godsend if you face a claim.
What Does Professional Liability Insurance Cover?
Some common types of insurance that covers professional liability include:
- Malpractice insurance. This insurance is only for medical professionals and people in the healthcare industry. It guards against loss from flames due to mistakes or negligence.
- E&O insurance. Errors and omissions liability coverage. With this coverage, you are protected from claims for giving faulty advice or counseling a client when the advice you give leads to a financial loss. Architects, designers, insurance agents, stock brokers, real estate agents, consultants, and lawyers should carry this valuable professional liability insurance coverage.
- D&O insurance. Directors and officers liability insurance handles the specific risks of directors, officers, and other high-ranking executive professionals. This coverage pays for claims from scenarios such as the release of information deemed confidential, poor investments made by the officer, unlawful acts, firing and hiring issues, conflicts of interest, and gross negligence.
- Occurrence insurance. This policy pays for expenses when a covered incident occurs, even if the policy lapses, as long as the event occurs while the policy is in force.
Why Does A Business Need Errors & Omissions Insurance?
Following are six reasons why professional liability may be necessary for your small business:
- Professional Liability is no longer limited to occupations such as doctors and lawyers. Many small businesses provide services that could be held to a professional standard.
- Mistakes happen and even minor mistakes can have major financial consequences.
- Today's customers don't hesitate to bring action against a business if they feel wronged or if services don't meet their expectations.
- Costs to defend and pay claims for professional services can put a significant financial strain on a small business owner.
- Most general liability policies do not explicitly provide coverage for claims of economic damages only.
- Increasing numbers of job contracts require that professional liability insurance coverage be in place.
Which Professions Are Most Likely to Face Suits?
Although there are an endless number of professionals who can be sued for in a liability action, some are more prone to litigation. While doctors and lawyers are the most frequently sued (so much so that some states require that they carry malpractice coverage), others are also vulnerable, including accountants, graphic designers, engineers, insurance professionals, management consultants, and software developers.
Scenarios Where Professional Liability Insurance is Crucial
Reviews these scenarios to help you understand the nuances of how professional liability insurance can benefit different professionals.
- Financial advisors. Regardless of claim legitimacy, if a client's investments fail of if the client has not been fully advised of his risk before making an investment, the financial advisor can face a claim.
- Lawyers. When a lawyer misses a deadline or date, litigation can be pursued, often successfully so. With or without merit, professional liability insurance can help.
- Private investigators. A PI who supplies incorrect information to a client can face a claim if a financial loss occurs.
- Consultants. If a consultant makes a mistake that can cause a business shut down or a website shut down, then a lawsuit may result.
- Contractor. A contractor or a subcontractor working under the contractor who performs shoddy work faces potential lawsuits.
As you can see, there are various ways that a client can target a professional with a claim. Protect yourself to the fullest by reviewing your professional liability insurance policy needs with a seasoned agent who can recommend the best types of errors and omissions policies and limits that cover all potential perils you face.
Errors And Omissions Coverage By Profession
Following are some examples of professional liability policies in different industries:
The ISO Commercial General Liability (CGL) policy does not protect accountants or accounting firms from losses that allege harm from accounting activities. It excludes any loss involving professional services. This serious coverage gap is filled by a type of errors and omissions coverage called Accountants Professional Liability Insurance which is designed to respond to losses that involve the following:
- Alleged negligence in auditing and preparing financial statements
- Providing faulty tax advice
- Providing poor investment and/or general business advice
The spectacular failure of accounting firms to properly handle their responsibilities as financial watchdogs has resulted in unprecedented scrutiny of the accounting industry, including new legislation, such as the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Sarbanes-Oxley Act, that create new liabilities for these professionals.
Beauticians And Barbers
Fundamental coverage provisions are similar in professional liability policies and coverage parts written by the various underwriters for beauticians and barbers. But they are not standardized. Therefore, it is important to check the coverage features and options of an insurer's program. Coverage typically involves:
- Injury or damages arising out of defined professional services provided at a beauty or barber shop.
- Products liability due to harm arising out of application of preparations that a salon or shop's clients purchase at the insured location and then use at home. Coverage may or may not apply to preparations made by the insured.
There are regular references to certain terms in beauticians and barbers professional liability insurance contracts. Because of their importance, these terms are defined. While not all of the following terms are defined in the policies of various insurers, they have general acceptance.
"Beauty salon services" means an act, error or omission in the rendering (including the use of related preparations or appliances) of any of the following services:
- Eyebrow arching, tweezing and plucking
- Eyelash and eyebrow tinting by use of mascara and eyebrow pencils
- Finger and water waving
- Hair and scalp massaging and conditioning
- Hair cutting, styling, trimming, singeing, conditioning, dressing, shampooing, shampoo tinting, bleaching, dyeing coloring by liquid dyes, Henna treatment or hair crayons
- Hair straightening or hair relaxing
- Manual application of cosmetics
- Manual face and neck massaging
- Nail care services
- Permanent hair waving by cold wave or acid wave, curling iron or blow dryer
- Removal of unwanted hair by shaving or use of wax, or depilatory preparation
Regarding "services" - It is critically important that an insured understands how the applicable policy defines services. In the event of a loss, the insured and the insurer may dispute what is meant by the definition.
Currently, some salons offer an even wider array of services that involve a higher level of risk as they cross into the realm of medical and even surgical procedures. Current operations may involve tasks such as:
- Botox injection
- Laser Treatments
- Permanent Make-up
Many traditional services offered by beauticians are covered in professional liability policies or coverage parts written by insurers providing beauticians professional liability. However, coverage may differ widely regarding newer services, particularly those that resemble medical procedures.
Health Care Providers
This insurance covers claims against an insured health care professional alleging malpractice arising from his or her professional acts or omissions or those of persons for whom he or she is responsible.
Health care providers are extremely vulnerable to claims for errors and omissions. This is because human lives and people's health are involved. An error or omission can result in serious injury or a patient's death. An injury could seriously reduce the patient's quality of life and result in that patient requiring life-long maintenance in an assisted living facility. A patient's death could result in dependent children being left without a parent's support. A birth-related injury could result in parents being responsible to care for a severely disabled infant for the rest of that child's life. This results in the need for high insurance limits.
Health care providers are not held to absolute standards of performance. Courts both in the past and currently recognize that medicine is a profession that requires judgment. However, providers are required to exercise a degree of care and skill common to their area of expertise. Not every medical intervention results in a favorable outcome. The issue that must be resolved in a malpractice action is to determine what a competent and prudent provider would have done under the same circumstances and in the same geographical area.
Land surveyors develop information and reports that are relied upon by:
- Governmental authorities
- Land owners
- Mortgage companies
- Residential and commercial property owners
- Title companies
Surveyors are hired to establish property boundaries. When boundaries are not properly established, clients may face substantial financial loss. Land surveyors professional liability insurance is designed to protect the surveyor or survey firm that is faced with allegations of an error, omission or negligent act.
Law Enforcement Liability (LEL) coverage was developed to respond to losses that result from “wrongful acts” (acts, errors or omissions) of law enforcement agencies. It is an essential part of any insurance or risk management program for any law enforcement agency as protection is required for acts of political entities and their public officials, law enforcement officers, other employees, auxiliary personnel, reserves, and authorized volunteers.
Private companies that offer security services, such as patrol or guard services, have similar exposures. For these agencies, protection for loss resulting from “wrongful acts” is required for acts, errors or omissions of their owners and employees.
Pharmacists are individuals who are licensed to prepare and dispense prescribed medications. A pharmacist acts as a supply pipeline to safely distribute medicines. They work within large chain stores that include pharmacy departments as well as in hospitals, clinics, nursing homes, laboratories, and pharmacological colleges.
Pharmacists function either as employees or as independent contractors. Regardless of the basis for employment, every pharmacist should carry individual professional liability insurance. Individual coverage addresses needs such as the following:
- Having additional (supplemental) limits
- Being certain that coverage exists
- Maintaining coverage against liability for professional services unrelated to the insured employer
- Preserving continuous coverage if the pharmacist changes employment
The need for pharmacist professional liability insurance is well established. A mistake in preparing a prescription can result in serious injury or death. The exposure is minimized by constant care and adherence to professional standards. But the potential for making errors and being sued for them exists via a pharmacist's traditional duties as well as to their expanding role in consulting with patients, recommending drugs for application, administering vaccinations, and in providing the health care consuming public with detailed prescription drug information.
The attorney-client relationship burdens a lawyer with a set of clear and inflexible duties. The relationship accounts for the continuing requirement of privity for negligence suits against lawyers.
Regardless the area of practice, the issue that creates losses is misapplying the law. Many of these occur because an attorney is working outside his or her normal practice specialty.
Another common error is missing dates and deadlines, particularly those that involve statutes of limitation. This is a volatile issue because a missed date or deadline can often mean a lost chance to pursue litigation, so the legal practitioner or firm becomes the target of a malpractice claim.
Law firms and attorneys who confine their work to specialized areas of practice generally receive favorable underwriting treatment, including pricing. While mega firms are often avoided, larger firms composed of experienced, specialist-attorneys operating in well-defined areas of practice usually remain eligible for coverage consideration. Having risk management or loss control measures in place has emerged as essential for law offices to minimize the potential for malpractice claims. Firms that have developed effective programs are given high marks by underwriters.
Real Estate Agents And Brokers
Real estate brokers are held highly accountable for their duties and are recognized as professionals under the law. A completed application is essential for determining whether a real estate broker risk is acceptable. Pertinent information includes a firm's loss history, and relevant staff brokers' and salespersons' information.
Real estate brokers professional liability insurance deals with exposures related to the following:
- State (real estate) licensing requirements and regulations
- Realtor association codes governing the practice of members
- Statutory and case law affecting the activities of real estate brokers
Real estate brokers cannot rely on commercial general liability insurance for coverage of professional errors or omissions claims. General liability policies protect against "bodily injury," "property damage," and personal advertising injury losses rather than damages involving professional activity errors and omissions.
Safety And Environmental Consultants
Safety and Environmental Consultants Liability protects an insured against damages from actual or alleged wrongful acts. This term includes any act, error, or omission an insured commits. The policy can cover a variety of insureds, including employees, leased employees, and retired employees. However, coverage applies only when they act within the scope of their duties with respect to the insured business.
However, there is no coverage for liability exposures related to the insured's general operations that Commercial General Liability coverage forms and policies insure.
'Real Life' Court Cases Involving Professional Liability:
Red Lobster Inns Of America, Inc. Appellee V. Lawyers Title Insurance Corporation Et Al.
A title company provided nationwide service for a major restaurant chain which, by agreement, included: Acting as closing agent in land acquisitions through local agents; examining title with respect to intended restaurant use; advising the client of any restrictions of record that would be violated by restaurant use; providing the client with a copy of such restrictions with the interim Title insurance binders; issuing Title insurance on land acquired by the client.
The restaurant company entered into a land contract to purchase land for a new restaurant. The title company issued a Title insurance policy through its local agent, which had performed a title search and other prearranged services. Construction was halted when neighboring land owners threatened legal action because of a land use restriction that came to light. A settlement was reached, and construction continued after a long delay. The restaurant company sued the title company to recover lost profits precipitated by the title defect. Judgment for the insured was appealed by the insurer.
The appeal court noted that there was a restriction in a prior deed against use of the land as a restaurant as follows: “No free standing separate building . . . will be constructed on the lands for use as a restaurant or a liquor store." The court said that the agent of the title company "either overlooked or erroneously assumed (that the restriction did not apply) when it made its original title search and also when it brought the title up to date before closing."
The trial court had awarded loss of profits to the insured by misperformance of the agreement whereby the insurer was committed to examine the title and inform the insured of use restrictions. The award was computed from the date the court determined the restaurant would have opened (if construction had not been halted because of the undisclosed use restriction) to the date on which construction was completed.
The appeal court confirmed the judgment awarding loss of profits but disallowed an award of prejudgment interest, which the Arkansas Supreme Court had declared to be dependent upon "the initial measure of damages being determinable immediately after loss." The appeal court concluded that the loss of profits was not capable of exact determination immediately after the loss.
(Red Lobster Inns Of America, Inc. Appellee V. Lawyers Title Insurance Corporation Et Al., Appellants. United States Court Of Appeals For The Eighth Circuit. No. 80-1895. CCH 1981 Fire And Casualty Cases 17.)
Crum & Forster Management Corp. (Ill.) Et Al.
The sales manager of a real estate company left the firm to take a similar position with another company and, allegedly, induced other sales agents to leave the former employer and accept employment with the new company. It was further alleged that he took business from and left debts with the previous employer.
The lawsuit was brought by the former employer against the new one, and its affiliates, and the sales manager and his wife. The matter was referred to the professional liability insurer of the new company, which filed an action for declaratory judgment, seeking a determination of duty to defend and indemnify the defendants. The insurer filed a motion and the defendants filed a cross-motion for summary judgment.
The applicable policy provided coverage for sums an insured "....shall become legally responsible to pay in damages....by reason of any act, error or omission in professional services rendered or that should have been rendered....because of personal injury arising out of the professional activities of the Insured as a real estate agent estate broker...."
The trial court allowed the defendants' motion, finding "the conduct alleged in the....complaint brings the defendants within the potential coverage of the policy...." The insurance company appealed.
On appeal, the insurer argued that the allegations brought against its insureds were not within the coverage of the policy. It said that "....the policy in question was an errors and omissions policy and is analogous to malpractice insurance policies dealing solely with services to others and to the public, not actions between business partners."
The appeal court quoted the trial court as follows: "It was the action of the defendants as real estate agents and brokers in allegedly taking away....real estate business which started the proceedings in the first place. Had defendants not engaged in the real estate profession, there would have been no lawsuit." It concluded that the alleged facts were sufficient for a finding of a duty to defend.
The judgment of the trial court was affirmed in favor of the insureds and against the insurer.
(Crum & Forster Management Corp. (Ill.) Et Al., Plaintiffs, Appellants V. Resolution Trust Corp. Et Al., Defendants, Appellees. Illinois Appellate Court, Fourth District. No. 4-92-0148. October 29, 1992. Cch 1993 Fire And Casualty Cases, Paragraph 4009.)
Mt. Airy Ins. Co., Plaintiff V. Thomas E. Angst & Associates, P.C. Et Al.
An insurer sought to rescind a professional liability policy that it had issued to a law firm upon learning of material misrepresentations made in the application for insurance that was completed and submitted by the president and senior member of the firm. The filing of a complaint seeking a declaratory judgment entitling it to rescind the policy was not a response by the insurer to a claim against its insured. The filing was initiated when it learned of a condition created by the firm's president, prior to his submission of the insurance application, that would likely lead to a claim under the policy.
The applicant (the law firm's president) died four months after the issue of the policy and before the insurer filed its complaint. The insurer relied on a deposition of the executrix of the estate of a client of the applicant and the affidavit of the insurer's underwriting manager. The testimony of the two established facts on which the court based its conclusion.
The executrix testified that the applicant contacted her (approximately two years before applying for the insurance), upon the death of the man for whose estate she was responsible, and informed her that he was the deceased's attorney. She said that, despite her making it clear that she wanted to sign all checks drawn on the estate, he "....established a checking account for the estate and withdrew money from the account by issuing checks payable to himself or the professional corporation, which he signed...." without her authorization. The memo lines on the checks identified them, variously, as being for pre-death legal expense, legal/administrative expenses or fees, or for transfer to an escrow account.
The court found from the evidence that the applicant, before completing and submitting the application for insurance, withdrew almost $150,000 from the estate checking account without authorization from or explanation to the executrix. He ignored her questions about distribution of assets to beneficiaries, canceled numerous scheduled meetings and did not respond to frequent requests for an accounting.
The insurer's underwriting manager confirmed that the representations made in the insurance application were material and that the underwriting department relied on them in issuing the policy. The court concluded that any reasonable jury would find that the misrepresentations influenced the company in deciding to write the policy.
Finding the evidence overwhelming that the law firm's president had knowledge of substantial misappropriation (his own) of estate funds and submitted the application, knowing his statements were false, the court granted the motion for summary judgment in favor of the insurer and against the law firm. The insurer had no obligation to the insured under the policy, which was void.
(Mt. Airy Ins. Co., Plaintiff V. Thomas E. Angst & Associates, P.C. Et Al., Defendants. U. S. District Court For The Eastern District Of Pa. No. 95-3106. Jan. 22, 1997. Cch 1997 Fire And Casualty Cases, Paragraph 5950.)
Small Business Economic Data & Insurance Regulations
Perhaps you have the next great idea for a product or service that you know will appeal to your local area. Maybe you want to contribute to the economic growth of your community. Whatever the reason is, if you're thinking about starting a small business, it's important to understand pertinent information relating to small businesses in the United States; namely economic information and insurance regulations. After all, if you want your small business to succeed, you have to understand the economic trends organizations of a similar size in your area.
Likewise, you want to ensure that your small business is well protected with the right business insurance and that you are in compliance with the rules and regulations that pertain to commercial insurance in your region.
Read up on economic statistics and insurance information that relates to small business owners in the United States.
Small Business Economic Data In The United States
Here's a look at some information that was compiled by the Small Business Association (SBA) regarding the economic data that pertains to small businesses in the United States:
- In 2015, small businesses in the United States employed an estimated 58.9 million American workers, or 47.5 percent of the nation's private workforce.
- Largest shares = fewer than 100 employees. The small businesses that employed 100 people or less had the largest share of employment amount small businesses.
- Employment increased by nearly 2 percent. In 2018, employment amongst small businesses increased by 1.8 percent, which is an increase of 1 percent from the prior year.
- Increase in proprietors. In 2016, the number of small business proprietors increased by 2.3 percent.
- In 2015, small businesses were responsible for creating 1.9 million net jobs. Organizations that employed 20 people or less had the largest gains, as they added an estimated 1.1 million net jobs.
- There were 5.7 million loans that were value less than $100,000 issued by lenders in the United States in 2016. These loans were issued under the Community Reinvestment Act.
- Small business owners that were self-employed at the incorporated businesses that they owned reported a median income of $50,347 in 2016.
- Small business owners that were self-employed at the unincorporated businesses that they owned reported a median income of $23,060 in 2016.
Small Business Insurance Information
In the business world, there are many risks faced by company's every day. The best way that business owners can protect themselves from these perils is by carrying the right insurance coverage.
The The National Association of Insurance Commissioners (NAIC) is the U.S. standard-setting and regulatory support organization. Through the NAIC, state insurance regulators establish standards and best practices, conduct peer review, and coordinate their regulatory oversight.
Commercial insurance is particularly important for small business owners, as they stand to lose a lot more. Should a situation arise - a lawsuit, property damage, theft, etc. - small business owners could end up facing serious financial turmoil.
According to the SBA, having the right insurance plan in place can help you avoid major pitfalls. Your business insurance should offer coverage for all of your assets. It should also include liability and casual coverage. The SBA recommends the following insurance plans for small business owners:
- Commercial Property Insurance: In the case of an unplanned disaster - fire, flood, vandalism, theft, etc. - this type of coverage will help you avoid paying for the damage out of your own pocket. Even if you rent the property, you should still carry commercial property insurance.
- Commercial Liability Insurance: In the event that a legal situation arises - a negligence lawsuit, for example - commercial liability coverage will provide financial protection. It will cover the cost of legal defense fees, court fees, and even moneys that may be awarded.
- Commercial Auto Insurance: If you operate a vehicle for any activities that are related to your business - transporting and/or delivering goods, or meeting with clients - commercial auto insurance is legally required for businesses of all sizes, including small businesses.
Additional Resources For Small Business Insurance
Protect your company and employees with the right commercial insurance policies. Read informative articles on small business insurance coverages - and how they can help shield your company from legal liabilities.
- Small Business
- Business General Liability
- Business Liability
- Business Owners Policy (BOP)
- Certificate of Insurance
- Commercial Auto
- Commercial Umbrella
- Comprehensive General Liability
- Directors and Officers Liability
- Cyber Liability
- Employers Liability
- Employment Practices Liability
- General Liability
- Home Based Business
- Independent Contractor
- Liability Insurance Certificate
- Liability Insurance
- Professional Liability
- Workers Compensation Insurance
Your small business faces many potential disasters including: fire, floods, theft, equipment breakdown, lawsuits from clients or customers and current & former employees. Any many other risks you haven't even thought about.
A small business commercial insurance program should provide protection for both larger and smaller disasters. The obvious things like fire, flood and theft most business owners think about... but what if a hacker infects your computers with a virus - and files containing private customer information like credit card and Social Security numbers are stolen?
Who is going to pay to fix your customers credit rating etc...? Will your insurance pay for the cost? You need to know that.
Your commercial insurance program should cover events that can close down your company, or cause it to lose revenue. Anything less than that is not enough coverage. Commmercial insurance doesn't cover everything, and all policies have exclusions and limits.
You need a written plan that allows you to get your operations back up and running as quick as possible.