Professional liability Insurance is also known as Errors and Omissions Insurance. This type of insurance coverage is designed to protect you, your company and your employees if a service that you render is claimed to have done harm to a customer. Specifically if a customer claims you have caused them financial loss of some sort by your actions, professional liability insurance covers you from having to personally shoulder that liability.
Professional liability insurance is particularly important for service related businesses. However, not all insurance companies offer this coverage, while others only offer it to certain types of companies because they specialize in coverage for those specific industries.
Professional liability coverage is useful for protecting some businesses and specialists because there is such a strong human element involved with providing services. For example, an accountant office cannot provide services to clients without having accountants on the payroll, and when people are the primary source of goods and services, there is always a slight risk of errors arising.
If a stock broker accidentally puts a comma in the place of a period for a client’s stock purchase order, the client can sue for the financial damages and loss that arise from that mistake. If a tax preparer forgets to sign and date the customer’s income tax return and it is denied by the IRS, the customer may be subjected to financial loss in the form of fines and penalties because the valid signed and dated tax return was sent in after the April 15th deadline. The customer rightly has a claim for this error against their tax preparer.
In both of the examples above, the stock broker and tax preparer can elect to purchase professional liability insurance to help cover themselves and their businesses from these types of errors and omissions that cost their clients additional fees and expenses.
Professional liability insurance is normally available in one million dollar increments and they can have deductibles that range from $1,000 to $25,000 for each claim.
Coverage Conditions and Limitations
Most professional liability insurance policies are designed to cover specific types of claims. This means that the policy will not automatically cover any errors or omissions that arise from the actions of you or your business employees. The only risks that are covered in the professional liability policy are those that are specifically listed on your insurance policy contract.
The policy must also be fully in force at the time of the claim in order to provide coverage for a loss. Any claim that a client or customer makes against your business or an employee of your business must be a listed claim on your coverage, and must have allegedly occurred while your policy was active in addition to the coverage being active when the claim is filed. In other words, if a customer makes a professional liability claim against your company two years after an event supposedly transpired, your professional liability coverage must still be active in order to use it against the claim. If the policy expired or was dropped the year before your customer brought the suit against you, the professional liability insurance will not cover you against the claim.