Professional liability insurance (PLI), also known as errors and omissions (E&O) insurance, provides protection for specialized professionals from financial harm and reputational risks caused by claims alleging negligence in professional services. Although a person may be considered an expert in their field, mistakes or oversights can still happen that result in a lawsuit filed by a client or customer.
Government contractors often rely on professional liability insurance to protect against claims of personal injury, copyright infringement and more. General liability insurance is often not sufficient for professionals who have expertise in a specific area as general liability policies do not offer protection against claims that arise out of professional or business practices, such as malpractice or misrepresentation.
Learn more about professional liability insurance, what it covers and why it is important for government contractors to carry this type of policy.
What Is Professional Liability Insurance?
Professional liability insurance is a type of business insurance that protects against claims of negligence from customers and clients. Claims covered by PLI can include damages caused by something that a professional did or that they should have done. For example, a clerical order in an email or contract for important deliverables could result in a miscommunication that delays a client’s critical work, resulting in lost money.
Common items covered by professional liability insurance include:
- Mistakes or Negligence – Services offered, or not offered, by the business that results in client damages.
- Personal Injury – Claims of slander or libel, whether or not they are founded.
- Copyright Infringement – Copyright law issues, oversights, mistakes or misunderstandings.
Professional liability insurance often covers a variety of expenses, such as legal defense costs. Legal costs associated with lawsuits against the business, regardless of fault, can be substantial. Professional liability insurance helps cover all, or a portion of, these expenses. Insurance may also cover work performed by employees, including independent contractors or temporary staff.
How Does Professional Liability Insurance Work?
Professional liability insurance policies are commonly written on a claims-made basis and include a retroactive date. The retroactive date means that the insured is covered for incidents that may occur on or after a specified date in the policy. PLI also has an extended reporting period that covers claims that are filed within a specific time period after the policy has expired. The extended reporting period is usually a 30 or 60 day period but can be extended further at an additional cost.
What Does Professional Liability Insurance Not Cover?
Professional liability insurance is often tailored specifically to professions, meaning exclusions can range based on the insured. However, some areas are generally not covered by this type of policy.
Bodily injury is typically not covered by professional liability coverage. If a business owner or employee causes bodily injury or death to a third person as a result of their work, it would typically be covered by a general liability policy. PLI may apply to bodily injury claims in certain fields, such as medical professionals, engineers and architects.
Third-party property damage is also not covered by PLI. An exception is property damage caused by engineers and architects. Another area usually not covered by professional liability insurance is advertising injury. Personal and advertising injuries, such as libel, slander, copyright infringement, wrongful eviction, false arrest and malicious prosecution, are usually covered under a general liability policy.
Who Needs Professional Liability Insurance?
Many types of businesses can benefit from carrying a professional liability insurance policy. Some states require certain businesses to have this type of business insurance while other states make coverage optional. A government contractor should consider acquiring professional liability insurance if they have to sign a contract that requires them to carry coverage, if they regularly provide advice to their clients or if they offer professional services directly to customers.
How Much Does Professional Liability Insurance Cost?
The cost of professional liability insurance can vary based on factors that are unique to each business. Some factors that can influence the cost of a policy include:
- Type of business
- Claims history
- Policy details, such as coverage limits
- Business size and number of clients and employees
- Years in business
Who Needs Professional Liability Insurance?
Professional liability insurance can be beneficial to all types of businesses. Contractors in a range of industries can protect their businesses from claims of negligence. PLI is mandatory in certain industries, such as government, medical and legal fields. However, other types of businesses can also benefit from carrying professional liability insurance, such as IT consultants, event planners, programmers, software developers, photographers, musicians, marketing consultants and creative directors.
Why Is Professional Liability Insurance Important?
Professional liability insurance is the only type of business insurance that financially protects a business from lawsuits that stem from job performance. Many clients require this type of coverage in their contracts to ensure that they do not suffer losses due to a contractor’s work.
There are also other reasons to carry professional liability insurance such as helping to protect a business’s investments. Lawsuits can be costly and even if a professional is wrongfully accused of wrongdoing, defense costs can quickly add up to a substantial sum of money. Professional liability insurance can help cover legal fees and protect against the unexpected.
Carrying professional liability insurance can also open up new business opportunities for government contractors. A business that does not carry the proper business insurance may appear to be a bigger risk making potential clients more likely to pass them over. PLI can also provide business owners with peace of mind that they are covered in the event of a claim.
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Regardless of the industry, operating any type of business involves some level of risk. Oversights or errors made by a business owner, employee or independent contractor can trigger legal action due to claims of errors, omissions or negligent acts. Having a professional liability insurance policy can help keep the business protected from costly legal fees, judgments, settlements and other expenses.
For more information on how professional liability insurance works for government contractors, or to schedule a consultation with an experienced business consultant, contact the insurance experts at the Business Benefits Group.