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GIB, Inc.  
2910 Morning Creek Rd
Suite 4
San Diego, CA  91914
PH: (619) 661-0641
FX: (619) 661-0642

What is Professional Liability Insurance & who needs it? 

A professional liability policy covers a business or a professional person against "claims for loss due to wrong advice or failure to do what should have been done."

Professional liability insurance was developed to meet the increasing insurance demands on professionals of all disciplines. Professional liability insurance is sometimes difficult to obtain in a severely restricted market place.

In today's complex world, we often need the advice or help of "professionals." Professionals have, by definition, special skills and knowledge about their fields. They are expected to deliver a higher standard of care and expertise. When professionals fail to meet these expectations, they are sued and held legally liable to injured parties. Professionals require specialized insurance coverage known as professional liability insurance.

Professional liability insurance, also known as errors and omissions insurance, provides coverage for the defense and indemnification for errors and omissions in the rendering of professional services. Standard liability contracts do not provide this coverage. Each professional liability contract is unique to a particular insurance carrier and designed for a particular type of professional risk.

With the high cost and serious consequences of a professional liability lawsuit, comprehensive protection is especially important to all serious professionals today.

Unfortunately, many professional firms have in the past simply gone without professional liability insurance. Today, however, they may have to acquire it simply to stay in business. A firm attempting to compete for new business does not want to tell potential clients that it does not have professional liability insurance coverage. At best, they may be placed at a disadvantage. At worse, they will lose the business.

Of course, not all firms or individuals have chosen to go uninsured for the same reasons. Very often, however, this decision has been reduced to an economic one. In order to compete, all professionals will have to consider professional liability coverage more seriously.

If a business provides a consulting service, fee for service, or any form of professional opinion, professional liability insurance is essential. Professional liability claims normally allege a financial loss because of an error in the work or opinion of a professional person. Such losses are not covered by a general liability policy, which typically covers only bodily injury and property damage losses.

The most important asset a professional has is his reputation. Professional liability insurance can protect that reputation as well as contain costs.

Although professional liability programs for the more common professions have been offered for many years, newer programs are available today for more unique exposures.

For example, professional liability programs are offered for:

·         Lawyers.

·         Accountants.

·         Appraisers.

·         Architects.

·         Broadcasters.

·         Engineers and other designers.

·         Medical doctors.

·         Hospitals and clinics.

·         Real estate agents and brokers.

·         Insurance agents and brokers.

·         Directors and officers.

·         Dentists.

·         Geologists.

·         Personal Trainers.

·         Psychologists.

 This list goes on. Anyone engaged in a profession is subject to certain professional exposures and is a good candidate for professional liability insurance.

Professional liability coverage protects the insured against loss from a claim of alleged negligent acts and errors or omissions in the performance of his professional services. This might include claims of nonperformance, negligent oversell, fraud, or breach of contract. Professional liability insurance coverages generally include the following key features:

·         Legal defense cost, no matter what the allegations.

·         Coverage extending to W2 employees and 1099 subcontractors.

·         Optional coverage for allegations of copyright infringement and intellectual property infringement. Intellectual property infringement coverage protects the insured against claims alleging patent or copyright infringement. Software, systems, or processes are some of the most commonly known types of intellectual properties.

·         Personal injury. Personal injury protects the insured against claims of libel, slander, and invasion of privacy.

·         Advertising injury. Advertising injury protects the insured against claims of libel or slander, misappropriation of advertising ideas or style of doing business, and infringement of advertising copyright, title, or slogan.

·         Professional liability insurance pays for any resulting judgments against the insured, including court costs up to the coverage limits.

Consider the unlimited financial risk professionals face with each engagement for their professional services. In today's lawsuit happy society, a professional liability claim can expose one to legal fees and settlement costs much greater than the combined limits of existing insurance coverage, firm assets, and personal net worth. From a purely economic perspective, it does not make sense to offer professional services at prevailing fee levels if the professional faces unlimited risk.

A person would not participate in an investment with a potential to earn a small, largely fixed return that exposed him to a risk of losing all business and personal assets. He would probably conclude that the potential for gain did not justify the risk of loss. This analogy is not far from the reality of today's professional service environment. A fee and a profit margin are a fraction of potential risk, should things go wrong.

Businesses and professionals have struggled with an imbalance between risk and reward. Fortunately, a solution has developed: establishing a maximum dollar limit on the total liability which bears some relationship to the profit earned from the undertaking, hence, professional liability insurance.

In recent years, professionals have become prime examples of a business where the "risk versus reward" equation is out of balance. Modest fees, often negotiated in a competitive environment, have squeezed profits. At the same time, the professional's liability risk has exploded. In simple economic terms, the professional's liability problems are a result of too much risk for too little reward.

From a practical viewpoint, professional liability insurance can help to counter this imbalance.

In the United States, court awards have risen sharply in recent years. Increasingly, people are showing a willingness to turn to the Courts when they believe that goods or services they receive are substandard. The unfortunate fact is, even if one is not at fault, defending oneself in court is a costly business. It is a threat to financial security.

Most liability policies do not respond to suits involving professional services. Nor do they cover any legal disputes involving pure financial losses. Professional liability insurance complements Commercial General Liability coverage. It fills in dangerous gaps.

Lawsuits can affect any profession. A simple error or omission can result in exorbitant claims over defective design, improper appraisal, improper treatment, inaccurate advice, inaccurate information provided, and even typographical errors.

Who needs professional liability insurance? This type of coverage is necessary:

·         For professionals or experts in a chosen field.

·         When the work done is skilled and specialized.

·         When the professional duties involve providing advice or services.

·         When customers or clients expect high degree of service.

·         When the profession demands a high degree of moral principles and standards.

Anyone involved in the areas listed above may be vulnerable to lawsuits, and most business insurance policies do not offer coverage for this.

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