Professional Liability Defined
First of all, let’s take a moment to define what is meant by the term, “Professional Liability” insurance. Simply stated, it insures a person and/or an entity (corporation, LLC, LLP, partnership, etc.) against claims made by third parties (clients, patients, customers, etc.), alleging negligence in the rendering of, or the failure to render professional services.
Exactly what constitutes “negligence” is often a bit ambiguous, but can be loosely defined as the failure to provide the degree of knowledge, care or skill of the average professional peer, in good standing, under similar circumstances. Essentially, anyone or any firm that considers themselves an expert in any particular field can be held responsible for their work; their advice; their counsel. By the way, “Professional Liability” insurance is also often referred to as “Errors & Omissions” or “E&O” or “Malpractice” insurance. These are just different terms for the same type of Professional Liability insurance.
Who Needs Professional Liability
Historically, professional liability insurance was designed for what are often referred to as, “learned professions,” such as doctors, lawyers, CPA’s, architects, engineers, etc. These are professions that require an advanced academic degree, licensing, etc. In recent years, however, the scope of Professional Liability coverage has broadened significantly, and now includes such things as business management or marketing consultants, technology consultants, software designers and engineers, internet service providers, public relations, environmental consultants, mental health or substance abuse counselors, even insurance agents and brokers. The list in fact is virtually limitless, as just about anyone who claims to be in expert in their field, and is compensated for their expertise, can be held liable in the event that things don’t turn out as they should.
Incorporating Does Not Fully Protect You
A common misconception is that all one needs to do in order to avoid liability is to establish a corporation, limited liability company (“LLC”), o other type of limited liability entity, so that should a claim be made, all one supposedly has to do is “bankrupt” the entity and just walk away. Most professional liability claims are based upon a personal service. While the contract (written or not) may have been made with a corporation, LLC or such, the actual work or advise is provide by an actual person(s), whether a member or shareholder of the entity, or an employee. Thus, this type of claim generally names both the entity and the individual(s) involved.
Insuring for the Unexpected
One of the key issues to consider when deciding upon Professional Liability insurance coverage is that of defense. Even if you were to assume that you or your firm would never make an “error” or “omission” you simply cannot ignore the fact that anyone can allege anything and drag you into court. Maybe it has nothing whatsoever to do with you, but another firm gets sued by a client, and they can cross-complain against anyone and everyone who was even remotely involved in the disputed work. Regardless of any wrongdoing, you could still be faced with thousands of dollars in defense costs.