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What is Professional Liability Insurance?


Professional Liability Insurance is very important for professionals who operate their own business. It may also be referred to as professional indemnity insurance. The basic purpose of this insurance is to protect professional practitioners against potential negligence claims made by clients or patients. It plays an important role in various different professions. In the medical profession it is called medical malpractice while Notaries public, real estate agents, website developers, appraisers, management consultants, etc may call it E & O insurance (Errors and omissions insurance). Professional liability insurance is very vital for a professional as the risks can be quite significant and an error can prove to be quite costly. A professional is not only responsible for his/her property and employees, but also for the people/patients that their particular business comes in contact with. In short, the professional is responsible for any harm or damage done as a direct as well as indirect result of doing business.

Professionals have extensive technical knowledge and training in their field of expertise. But there are occurrences when an error can take place. If they fail to use the degree of skill expected from them for a particular job they can be held responsible in a court of law for any harm or damage caused to another individual or business. Having professional liability insurance in addition to an in-home business or business owners policy will protect the professional from financial losses from lawsuits filed against them by their clients. The main focus of this insurance is on the failure to perform, financial loss and error or omission of the products or services sold. The most common reasons alleged in making claims on a professional liability insurance policy are negligence, violation of good faith and fair dealing, misinterpretation and inaccurate advice. General liability policies only respond to property damage and bodily or personal injury.

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Professional Liability Insurance Coverage: Know before you buy your policy

Like all types of insurance policies, there are a lot of things to consider before you purchase a professional liability insurance policy. You must understand all the details of the policy because of the unique nature of the coverage that is provided. The knowledge also helps you in deciding how much coverage to purchase in order to reduce the impact of claims. Many policies are set up on a claim made basis. This means that all claims made during the policy period will be covered but claims related to incidents that occurred before the coverage was active will not be covered. These policies have a retroactive date which may operate to cover claims made during the policy period but which relate to an incident after the retroactive date – this applies when the retroactive date is earlier than the inception date of the policy. But cancelling the policy will make it as if you never had coverage for any incidents.

As a rule the policy will cover alleged or actual negligence in the performance of professional services. If a professional fails to meet the industry’s applicable standard of care, it is deemed as negligence. Since the policies for different professional services vary greatly, you must know what services you are covered to perform. This information is available in the definitions section of your policy under “Professional Services”. A word of caution against client written agreements which include adverse indemnification wording- you may find your firm in the unfortunate position of being uninsured if such indemnification is triggered. Many indemnification clauses can make the firm responsible for services beyond the applicable standard of care. You should have your insurance agent read such client agreements.

We have mentioned retroactive dates previously in this article. This is the date on which the firm first purchased the professional liability insurance. Your insurance policy will cover services performed by your firm after this date. Policies vary in that some of them provide “fully retroactive” coverage and some provide coverage that is limited to a certain date. There is no coverage for incidents or claims related to services performed before the retroactive date.

Professional Liability Insurance Cost:

The economic conditions in a country or state at a given point of time also affect the premiums. You should definitely compare the coverage and costs offered by various companies before you make a decision. You will find that the premiums usually start at about $1000 for a standard policy. Such a policy may cover a professional for up to $1,000,000 per claim and up to $2,000,000 per year. The premium for professional liability insurance also depends upon the revenue of a firm can be anywhere between 1% to 2% of the firm’s revenues or even more. Other factors that play a role in deciding your premium are the number of employees you have, the limits and deductibles you choose, your location and your risk factors. 

Some factors that affect your risk and thus your premium are:

  • Services you provide – The higher the damage that can be caused by the service you provide, the higher are your premiums.
  • Your experience – When you are researching the options offered by various firms you will find that you have to fill in a lot more details if you’ve been in the business for less than 3 years. The bottom line is that the insurance companies feel that if you have more experience in your field you present a lower risk compared to someone who has started a new business.
  • Types of clients – The types of clients you deal with is and important consideration. If your clients process a large volume of financial transactions you will prove to be a higher risk if they feel that you have cost them a lot of money.

A wise strategy is to buy only what you require. Try to understand what a particular policy includes and what can be bought as a separate component. Some of the common things you will find in many policies are –

  1. General Liability – this will protect the policy holder from claims of bodily injury and property damage.
  2. Intellectual Property Coverage – If you have developed a new product, service or idea there are often people who will claim that you have stolen the same. This coverage, also referred to as patent infringement protection, protects you against such clients.
  3. Property – This coverage is for your property and other business equipment in the event of theft, loss or damage.
  4. Virus Liability – If the client’s data gets corrupted by a virus that they believe your solution is responsible for, then this is the coverage that will protect you. However, this is quite an optional coverage as it does not apply to all kinds of businesses and services.

You must be aware of the exclusions listed in your professional liability policy. If you miss out on these you may have your claim denied and suffer a big financial loss.

  • Prior Knowledge – If a member of the insured firm had knowledge of a claim prior to the effective date of the policy your claim may be denied.
  • Prior to the Retroactive date – If the service that the claim has been made against was performed prior to the retroactive date of the policy the insurance company will not provide any coverage.
  • A claim against a firm not named on the policy – Most insurance companies will not cover claims made against a firm that is not named on the policy. Therefore, it is important to list all current and predecessor firms for which you require coverage.
  • Failure to report a claim in a timely manner – The claim must be reported within a reasonable amount of time, else the claim may be denied.
  • Claims arising out of non professional services – Claims of a non professional nature like fraud, faulty workmanship, breach of contract, payment disputes and intentional acts will not be covered.

Medical Professional Liability Insurance – Protect yourself

Medical Malpractice is professional negligence by the health care provider. It could be by an act or omission in which the care provided does not conform to the accepted standards of practice in the medical community. It could cause injury or death of the patient. Professional liability insurance should be purchased by medical practitioners to offset the risks and costs of lawsuits based on medical malpractice. The standards and regulations for medical malpractice are different for various countries and for jurisdictions within a country. So the best option is to check with insurance companies in your local area.

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The premiums charged by different companies also vary depending on the type of practice you have. A general physician would have a different premium than a heart surgeon. You should compare the costs of several companies before you decide. However, the one problem with medical professional liability insurance is that the rising number of lawsuits and cases against medical practitioners has made this insurance a liability for many insurance companies. Many companies have stopped offering this insurance or charge heavy premiums.

Legal Professional Liability Insurance – Save yourself from the financial damages of a lawsuit

The number of people who are just looking for even a minor negligence on the part of a professional in order to file a lawsuit is rapidly increasing. This makes conducting business a very risky proposition. The monetary damages in paying such claims could put the company out of business. Thus, legal professional liability insurance becomes an absolute must for any corporation to protect their company against lawsuits and the financial losses resulting from them. When you are in the market to purchase this insurance for your company you have to consider a lot of things – the type of business, the risks most prevalent for your business, the type of clients you deal with, etc. This will make your policy most suitable for your business. You will also save some money by not purchasing insurance products that you do not need.

It may surprise you to know that legal professional liability insurance policies are very important for lawyers. You would wonder how a lawyer or attorney would be sued. But it happens all the time. They may be sued for things like over billing, hiding evidence, refusing to represent a client for prejudicial reasons, etc. Then there is defined attorney malpractice wherein the lawyer is accused of not giving the client full service protection under the law. Real estate attorneys are more vulnerable to errors and misconduct. Each state or jurisdiction has certain nuances that are particular to that area. You must research carefully and check with several different insurance companies before you purchase your policy. The premium will depend on a number of different factors like the type of practice you specialize in, the number and type of clients you have, the size of your firm, the number of employees, etc.

Professional Liability Insurance Companies – Know before you buy

There are a lot of complexities involved in a professional liability insurance policy. You have to understand and process a vast amount of information before you can buy the right insurance policy for your profession and business. The basic contents of a professional liability insurance policy are the same - a declarations page, definitions, basic coverage’s, exclusions, limits of liability, defense provisions, settlement provisions, conditions, and finally, any endorsements or riders. But besides these basics there are a lot of things that are specific to each profession.

There are numerous companies offering this type of insurance. But since the standards and legalities of each profession and area are different you should obtain a list of companies offering this type of insurance in your local area. At times you will find companies that specialize in medical liability insurance or legal liability insurance and so on. Such companies may be able to offer you a better deal as it is their focus area. You can find listings in the yellow pages. The internet is a great place to search. You will find lists, forums and information on any type of professional liability insurance that you require.

 

Professional liability insurance is the requirement of the day for most businesses. Purchasing such a policy will save you and your business from heavy financial losses.

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