As a business owner, you’re constantly evaluating products and services pitched as essential to your success. While it’s wise to be selective, one type of coverage that should never be dismissed is professional liability insurance.
Often known as Errors and Omissions (E&O) insurance, this coverage is a critical supplement to your standard package policy (such as a property and liability policy). It specifically protects you and your company against losses from lawsuits filed by clients who claim your professional services caused them financial harm.
Lawsuits don’t always arise from major disasters. They can stem from simple misunderstandings, a missed deadline that has a domino effect on a client’s project, or a final deliverable that doesn’t match a client’s expectations. Because these are everyday risks that can affect any business, professional liability insurance is a vital safeguard for any modern enterprise.
Who Is at Risk?
When a client hires you, they do so with the expectation that you bring a specialized level of expertise and training to the table. If you are an architect, for instance, clients trust that you are licensed and proficient in safely and effectively designing a structure. Should an error in a blueprint lead to costly rework or damages, your firm can be held liable for failing to meet the professional standards of your industry.
While some professions have obvious liability exposures, the need for this coverage is widespread and applies to many industries that provide services or advice:
- Attorneys
- Medical professionals like doctors, therapists, and counselors
- Architects and engineers
- Construction contractors
- Accountants and financial planners
- Real estate and insurance professionals
- Publishers, writers, and advertisers
- Technology providers, IT outsourcers, and independent consultants
- Social media influencers
The Anatomy of a Claim and Its True Costs
For a client to successfully bring a professional liability claim against you, they typically must prove two things: first, that you failed to uphold the professional duty or quality of work outlined in your contract, and second, that this failure directly resulted in a financial loss for them.
However, even if a claim is without merit, you are still forced to defend your business and its reputation. The cost of this defense alone—including attorney fees, court costs, and expert witness fees—can easily run into the tens of thousands of dollars, a potentially devastating blow for a small business.
The damage isn’t just financial. A public lawsuit can severely harm your business’s reputation. Potential customers may choose a competitor to avoid perceived risk, and even current clients might be prompted to scrutinize your work, potentially leading to more disputes.
How Insurance and Contracts Protect You
Well-drafted contracts are your first line of defense against liability claims. But when a lawsuit is filed despite a solid contract, professional liability insurance is your essential safety net. This coverage can help pay for everything from your legal defense and administrative costs to settlements and court-ordered damages.
It is critical to work with your insurance broker to select appropriate policy limits. In many policies, the funds used for your legal defense are drawn from the same pool of money available for a potential settlement. A lengthy legal battle could deplete your limits, leaving you to pay any settlement costs out of pocket. Your broker can help you understand these details and layer your coverages appropriately to avoid dangerous gaps.
In today’s business environment, having professional liability coverage is a sign of responsibility. It shows clients that you are a serious professional who cares about protecting their interests as well as your own. Don’t leave your business exposed. Call your insurance broker to protect your finances and your reputation today.
