Article Reviewed by a licensed insurance professional: Sam Meenasian (CA dept of insurance license #0F75955).
Estimated reading time: 10 minutes
Your clients rarely call to credit your advice when outcomes are positive, but they often reach out quickly when something goes wrong.
In some cases, clients may be unhappy with the outcome even if the work was solid. In regulated professions, complaints, claims, or adverse events may trigger licensing board inquiries or disclosure/reporting duties, depending on profession, state rules, and employer/contract requirements.
Professional Liability Coverage
This type of insurance helps financially to cover things like legal fees, settlements, etc. Because most professional liability policies are claims-made (and many are claims-made and reported), coverage typically depends on when the claim is made and when it is reported to the insurer. Maintaining continuous coverage and reporting potential claims promptly is important, as is buying the policy in the first place.
Many professional liability policies include defense coverage for alleged errors or negligence even when the policyholder disagrees with the claim, but coverage may be subject to the policy’s terms, exclusions, and reporting requirements.
Professional malpractice allegations can be costly to defend, even when you believe your work was solid. Legal fees, expert costs, and the operational distraction can range from a minor inconvenience to a serious financial strain that disrupts day-to-day business. Professional liability insurance helps cover defense costs and, when applicable, covered settlements or judgments, helping keep a disputed outcome or small mistake from turning into a major financial event, subject to the policy’s terms, limits, exclusions, and deductible.
Professional liability claims commonly include:
Errors or omissions
Misrepresentation
Failure to meet professional standards
Legal defense fees
Many believe that professional liability insurance is only needed by engineers and accountants. The truth is, if your business involves steering important decisions, you should consider this coverage.
Who Should Carry Professional Liability Insurance?
1. Consultants and Business Advisors
When you provide business and consulting advice to other people, your business may become a potential target for professional liability claims. You are in a position to shape the success of your client’s business. You review strategies, shape decisions, interpret information, and provide the guidance your clients need to build a thriving business.
But with great responsibility comes great risk. Your advice may not pan out for your clients, even when you use your best judgment to provide it. And it’s not always fair, but that’s just the nature of business.
When results aren’t what your clients expected, they may look for someone to blame. If they followed your advice and the results are disappointing or costly, they most likely hold you accountable for the outcome. Maybe they are down $500,000 after taking your advice. They thought it was a good idea, and now they are angry about the losses.
Even when you provide well-reasoned advice, a client may still misunderstand your guidance. Disputes could escalate into a demand, a complaint, or a lawsuit, even when you believe your work was appropriate. Defending a professional liability allegation can be expensive, regardless of the outcome.
Litigation could cost more for your business. Time, attorney fees, reputation, and stress. It is not a pleasant situation for anyone. It takes your time and focus away from your actual work, it keeps you from performing your best for other clients, and it may even cause you to doubt your entire career choice. A lose-lose situation that you want to avoid at all costs when it comes to your business.
2. Architects, Engineers, and Construction Designers
There are serious consequences when buildings are constructed. As such, anyone in this industry should be insured against their professional liability. Contract disputes can occur in the construction field, and third parties can be injured by design mistakes. I am not exaggerating either.
Everything can look fine when walking through a building during the final phase of construction. But a few months after move-in, the owner can find hairline cracks in the foundation. Those cracks need to be repaire,d and the owner is not happy to do it. The building inspectors are requiring the repairs.
Now the owner wants you to determine why this is happening. They want you to foot the bill for the failure so that they don’t have to. And then you find yourself staring down a six-figure demand letter from the owner’s attorney. You can be prepared and not be caught off guard by this kind of scenario because you have coverage to help you navigate these disputes.
As a designer or an architect, you make judgment calls daily. That’s just part of the job, and you cannot be expected to make the right judgment call every time. But one oversight is just that—a small, inconsequential oversight—when you have your professional liability insurance backing you up.
3. Accountants, Bookkeepers, and Financial Experts
Be careful when a client hands you their money. In some professions, regulatory agencies provide guidelines as to how client funds are to be managed. You must follow these rules, or you may be in for some trouble. Some of these consequences can be the loss of your business license. This can happen to even the most diligent pros.
You may be the most meticulous financial professional in the world, but you can still make an accounting mistake or misjudge a huge risk. You may work in a field involving the preparation of taxes, and those taxes get filed incorrectly. When that happens, your client may lose money and even get some liability on their end!
You can bet your bottom dollar that if your financial advice ends up being off, your clients are not going to be pleased, and they are not going to be shy about making you pay for their losses. That’s just how this business works.
4. Medical, Healthcare, and Wellness Professionals
Doctors and nurses may need to have general liability insurance for their premises. But the truth is, chiropractors, mental health counselors, wellness coaches, physical therapists, physicians’ assistants, and all other types of healthcare professionals could be liable if their professional judgment inflicts harm on others.
In some circles, this coverage is called medical malpractice insurance. This is one of the largest areas where clients may sue and win damages. It is probably because malpractice in these areas can cause lifelong injuries or damages that cannot be reversed.
You need to be covered because serious injuries in this area come with extreme financial consequences. Some of which may be handed over to you if your advice or treatment caused that injury. As a professional where mistakes could sometimes have instant negative consequences, you should consider this type of protection at all times.
5. Real Estate Agents and Property Managers
In the world of real estate, a tiny detail could sink a deal or cost your clients thousands of dollars. If you misrepresent a property or neglect to follow state and federal regulations, you may soon get a call from an attorney or your local regulatory board. These types of claims are more common than you would think in the world of real estate. But you do not want to be underprepared when you find yourself facing a claim like this.
In reality, you’ll be hard-pressed to go through your career in real estate without becoming entangled in some form of legal issue at some point in time. If you pay out of pocket, your profits are going straight to the sewer.
Lawyers, Designers, and Tech Professionals
Attorneys are often sued for malpractice. There are so many ways in which things can go wrong for a law professional. It is not always the attorney’s fault. When a client loses their case, they sometimes just want to recoup their attorney’s fees, but that’s not the case; whatever the case is, you will see a lot of malpractice claims in law.
Or you design software for various companies to implement into their operations. When you work in software design, your company trusts you to keep its products safe. But when your design process results in data leaks or program malfunctions, you can bet those companies are going to want to come after you to fix it.
Consider professional liability insurance if you’re in these fields. You’ll thank yourself later.
Professional Liability vs. General Liability
Clients say things to me like this: “But I already have general liability insurance. Why do I need to spend money to buy more insurance?”
The answer is simple when you dissect it.
General liability insurance may not cover your professional errors. To protect yourself, consider professional liability insurance. You do not want to be caught without professional liability insurance if a disgruntled client questions your professional expertise. Or worse, you find yourself being investigated by your local regulatory board.
General liability insurance typically does not cover professional negligence. Instead, those claims are typically addressed by professional liability or errors and omissions (E&O) insurance. Commercial general liability (CGL) generally helps cover third‑party bodily injury and property damage claims arising out of premises and business operations (including off‑site work) and may include personal and advertising injury coverage, subject to the policy’s terms, exclusions, and endorsements.
Whereas professional liability insurance helps cover financial harm that directly stems from professional work. It may not cover physical accidents or property damage, but it may help to cover the type of claims that occur as a result of advice or services provided.
If someone slips and falls on your premises, then this incident may be covered under your commercial general liability (CGL) policy, subject to the policy’s terms, conditions, limits, and any applicable exclusions.
But if a client alleges that your consulting advice was negligent and caused them a $500,000 financial loss, then this type of claim is typically addressed under professional liability (errors & omissions) insurance.
These policies both go hand-in-hand. They both step in where the other does not. If you want to have the most comprehensive coverage available to you, the coverage that steps up for you when you need it the most, you’ll need to consider both policies in place at all times.
What Happens When You Don’t Have Professional Liability Insurance
Without professional liability insurance, you are at risk for things like:
Attorney fees, which can easily run $30,000 to $100,000
Court costs and settlements
Loss of reputation and business license
Personal financial devastation if you’re a sole proprietor
You will still pay to defend yourself even if you are in the right. Legal fees alone are enough to sink a small business. Failing to defend yourself at all will leave you footing a much larger bill than you deserve, and that is a situation you do not want to be in.
You can easily protect yourself by having the proper professional liability insurance coverage in place before it is needed.
How to Purchase Professional Liability Insurance
Here is what I tell new clients when they are ready to protect their business:
Describe your professional services in detail
Compare limits that are commensurate with your level of risk
Ask about retroactive coverage
Combine with your general liability policy
Work with an independent agency
Professionals typically look at purchasing a policy as just a box to check off, but the details matter far more than most people give credit for. The policy wording will determine what services are considered covered services. I recommend you review these specifics with someone who has a good understanding of your industry and the claims that you are likely to face.
Key Takeaways
Professional Liability Insurance can help protect your livelihood from lawsuits.
General liability insurance only goes so far and typically does not cover professional errors.
Legal defense costs alone make this coverage a no-brainer, even if you never face a claim.
Your correctly written policy could make your business more credible and better protected at the same time.
A claim doesn’t always start with a dramatic error on your part. Even subtle mistakes could come back to bite you. Don’t be caught underinsured without professional liability, especially when there are so many great options available.
