Professional liability insurance is also known as professional indemnity insurance. It is a type of insurance that helps to protect those individuals and companies who provide services and advice, should a negligence claim be made by a client. In effect, it will help the individual or company from bearing the complete cost of defending the claim, as well as the cost of damages, should they be awarded in a lawsuit.
There are certain professions which require this form of insurance by law. These are generally those in professional practice, such as doctors and lawyers. In other cases, it can be required based on contract by other businesses.
Coverage for individuals and businesses is important as it will cover a myriad of possible claims. For example, it will cover an alleged failure to perform the agreed upon terms of a contract. It will also cover the policy holder for any financial loss caused by an error in the service being sold.
Such instances and particulars are not covered by the more general insurance policies, and as legal claims are still rising, it makes very good sense to get as much coverage as possible. Certain policies will also cover defense costs in certain circumstances, but they are specific to the policy and the company providing the policy.
However, there are certain things that liability insurance does not cover. The major point to note here is that criminal prosecution is not covered under such a policy. Likewise, there are many liabilities which come under civil law which are not covered.
Based on the profession, this form of insurance can be termed differently. As such, in the medical profession it is known as malpractice insurance. Lawyers, consultants, brokers and insurance agents use the term, errors and omissions (E&O) insurance, to refer to the same type of policy.
When looking for coverage, here are some of the factors to consider:
Worldwide coverage – this is important as a large part of business today is conducted via the internet. With this aspect of the policy in place, it means that the policy will cover the business for work completed anywhere in the world, provided the covered claim is filed in the US (but it can vary from one insurance company to the next).
Covering past work – this is something to be vigilant of. If this is included in the policy it means that any claims arising from work completed before the insurance policy was taken out is also covered. The actual date will be agreed upon before the policy is signed, but this does provide added security.
Responsiveness to claims – knowing how quickly the insurance company will take to defend the claim made against the business is vital. The very best policies will defend the business immediately, which protects the business and provides time to gather the details.
Professional liability insurance is required in certain circumstances, but it is also recommended for businesses engaged in contractual work in the professional services industry.