Professional Liability Insurance

Professional liability insurance (often called "errors and omissions" insurance) protects you from the cost of defending or settling a claim against you for negligence that results in injury to another party.

Professional liability insurance coverage can vary in price depending on how much liability protection you need, your level of professional and financial risk as well as where you live. The average cost for a small business owner runs between $500 to $1500 per year for up to $1 million in coverage. How much professional liability insurance do I need?

For most small business owners, the general rule of thumb is to get enough liability coverage to protect your annual gross income. Banks and other lenders will often require that you have at least $300,000 in professional liability insurance before they grant a business loan.

Professional Liability Insurance encompasses all areas of practice for which your business is responsible. This includes financial losses arising from:

The best way to find out exactly what is covered under the policy is to ask your insurance agent for a copy of the policy. What's not covered?   Professional Liability Insurance does not cover errors and omissions that result from negligence or malpractice committed by someone other than you or those working under your direct supervision. Buildings and vehicles are often excluded from coverage for businesses such as architects, engineers, and contractors.

A deductible is the amount that you agree to pay towards any covered claim before receiving benefits from your professional liability insurance policy. All policies have deductibles although some are higher than others depending on the value of the coverage.

A retainer is an advance payment you make to your insurance company in exchange for receiving initial legal defense and investigation services from its attorneys. A typical retainer ranges between $200,000 - $1 million although the exact amount will vary from one policyholder to another depending on their industry.

How far back do I need to look when checking my professional liability insurance coverage?

Professional Liability Insurance policies provide "tracing of loss" protection that allows you to pursue full payment from the insurance company for covered claims, even if they were incurred in years past. When your policy expires, tracing of loss protection also goes away, and you will be responsible for covering any losses on your own.

A "claims-made" professional liability insurance policy covers only those claims made against you during the time your policy is in force. Claims-made policies often have lower premiums than "occurrence" policies, which provide coverage regardless of when the claim occurs.

An "occurrence" professional liability insurance policy covers all claims made against you in connection with covered errors and omissions, regardless of when they were made. Claims-made policies often have lower premiums than "occurrence" policies, which provide coverage regardless of when the claim occurs.

It is important to note that "occurrence" policies tend to have slightly higher premiums because they offer broader protection from the date of inception.

If you receive a written complaint, seriously consider contacting your insurance company for advice on how best to proceed. Your professional liability insurance policy may require that you give your insurance company written notice within 72 hours of receiving the complaint. If there is a potential claim, your professional liability insurance carrier will then decide whether to hire outside attorneys to pursue legal action on your behalf.

Your first step should be to contact your professional liability insurance carrier. Your policy should have a provision outlining specific steps that you are required to follow if someone files a malpractice claim against you. If the lawsuit has already been filed, call your legal counsel immediately and begin engaging in all forms of pre-trial discovery procedures.