Professional Liability (PL) insurance (also known as Errors & Omissions or E&O insurance) helps protect your small business from failure to uphold contractual promises in mostly service-based professions.
What does this actually mean for a small business like yours?
You may be more familiar with the terms “errors and omissions insurance” or “medical malpractice insurance,” both of which are used interchangeably with PL insurance.
Professional Liability insurance pays for financial or economic damages to your customers or clients as a result of:
- Incomplete or inaccurate work, and
- Breaches of contract.
- In the event you receive a lawsuit for damages, PL insurance would pay for your legal defense and any damages awarded to the other party.
Consider a situation in which, during the normal course of running your small business, you make a mistake that impacts a client. You’d be held responsible for legal fees and damages unless you’re protected by errors and omissions insurance.
Similarly, if you’re working with a client who depends on you to fulfill a service by a concrete deadline and you miss the deadline, causing a negative impact to your client, your client can file suit against you.
Professional Liability insurance would cover your legal fees and any damages you owe, preventing you from going out of business.
This type of insurance is critical for any small business that provides services or works on a contractual basis.
Common Professional Liability Questions:
Do you need both General Liability and Professional Liability?
Depending on your industry and level of licensing, credentialing, or training, you very well may need both types. The main difference between GL and PL is the risk exposure they cover for different types of lawsuits or allegations. If you work in a position where you’re exposed to more risks resulting from the quality of your advice, errors, or malpractice of your profession, consider Professional Liability insurance.
Who should carry Professional Liability insurance?
Small businesses who have special licensing, training, or credentials, and are worried about legal costs stemming from lawsuits regarding potential errors or omissions should consider Professional Liability insurance. Examples of professions include accountants, engineers, licensed beauticians, business consultants, and trainers. Some clients may specifically require you to provide a certificate of insurance to prove you carry this type of coverage.
Is Professional Liability insurance required by law?
Regulations and laws vary by state so be sure to check your state’s guidelines.