What Is Professional Liability Insurance and How Does It Protect You and Your Business?

Professional liability insurance (PLI) protects specialized professionals from losses caused by errors and omissions in their work. These incidents are often excluded under standard commercial general liability policies.

Unsurprisingly legal fees can add up quickly even if you aren’t at fault. A PL policy can help you pay those costs without straining your company’s financial resources.

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Defendants

Professional liability insurance covers you for various claims arising out of a mistake or omission by an insured professional. These errors and omissions can include failure to meet service deadlines, improper advice or representation, or misrepresentation. Claims are typically brought against attorneys, doctors and other healthcare professionals, accountants and financial advisors, architects and engineers, real estate agents and brokers, and other service providers. These professionals can commit mistakes and omissions that may seriously impact their client’s businesses. Once a claim is filed against an insured, the insurer owes its insured two duties: defending and indemnifying. Those duties require the insurer to appoint defense counsel unless the insured selects its counsel.

Errors and Omissions

If your business provides a service to clients for a fee, errors and omissions insurance (also called professional liability) is critical. It protects you against client disputes over your work, which can lead to costly lawsuits.

Whether you’re an accountant, financial advisor, real estate agent or public relations consultant, you’ll need E&O insurance if you make a living from your expertise. If a client files a lawsuit over a late or negligent job, E&O will help pay your legal fees and any settlements up to the policy limits.

Professional Liability Insurance Coverage Exclusions

Professional liability insurance coverage exclusions can be confusing and frustrating to many insureds. In particular, they can leave them without the protection they thought their policy would provide.

This problem is particularly true for professional services companies, such as real estate brokers, securities broker-dealers and technology firms, who look to their E&O policies to provide coverage when they are sued for mistakes arising from specific professional services. This is where the professional services exclusion comes in, which excludes coverage for claims arising out of a service that requires specialized skill or training. As a result, courts have recently found that, in some cases, a wrongful act that falls within a professional services exclusion constitutes no coverage under a CGL policy. That is a serious gap in the coverage picture that needs to be closed, so it’s essential to understand what exclusions exclude.

Limits of Coverage

If you provide professional services to clients, you should consider professional liability insurance (errors and omissions insurance). Claims against professionals are typically based on negligent actions or omissions.

For example, an accountant who forgets to file a client’s taxes on time might be held liable for a late payment penalty if the client files suit against him. In this case, he would need professional liability insurance to cover legal defense and settlement costs. The cost of professional liability insurance varies according to the type of business you have and your industry. For example, consultants, construction workers, real estate agents, lawyers and insurance agents pay higher premiums because they have a greater risk of claims. Limits of coverage for professional liability insurance are usually written as per occurrence limits and aggregate limits, with the latter being the total amount the company will spend in the event of a covered claim across all policy periods or years.