What Is Professional Liability Insurance & Why Is It Important?

You started a business, and you want it to be covered, so naturally, you look into insurance. You come across professional liability insurance and wonder what it is.

Well, you’re in the right place. In premise, PLI is insurance that protects professionals (lawyers, physicians, accountants, etc) against negligence initiated by clients.

In this article, we will cover in-depth what is professional liability insurance so you can make an educated decision about it.

What Is Professional Liability Insurance?

As mentioned earlier, professional liability insurance protects professionals (physicians, accountants, lawyers, etc) against negligence and similar claims from their clients.

Professionals who have expertise in any area require this insurance because general liability does not offer the protection against claims that come from the business or professional practice, such as misrepresentation, negligence, and malpractice.

What Does It Cover?

Professional liability insurance covers many things, some which are but not limited to:

  • Misrepresentation
  • Negligence
  • Malpractice
  • Inaccurate advice

Even if you are not in the wrong, your client still has the option to sue the business if they feel you’ve made a mistake. Without this coverage, you will be responsible for paying the legal costs out of your own pocket.

However, PLI does not cover everything. For instance, it will not help your business against claims like this:

  • Any claim of property damage or bodily harm. For this, you need general liability insurance.
  • Any claim of illness or work-related injury. If your employee gets sick or hurts on the job, you need workers comp to help them recover and return.
  • Any claim of a data breach. In this case, you need cyber insurance to cover business loss of sensitive information.
  • …And many more

Who Is Professional Liability Insurance for?

Professional liability insurance is perfect for a variety of businesses, and some states actually require this insurance to be active.

In other states, business owners choose this coverage in fear of a customer or client suing them.

Typically, you want PLI if you:

  • Offer professional services to your clients directly
  • Provide specialized advice to your clients regularly
  • Have to sign contracts that require you to have this type of coverage

However, there are a myriad of other reasons someone would want PLI, so keep that in mind. Whatever reason you need PLI for, make sure you find a specialized and experienced provider who is there for you, and not just themselves.

How Does PLI Work?

Depending on the field of expertise, professional liability insurance might have a different identifying name, such as errors & omissions for real estate, medical malpractice for medicine, so on and so forth.

PLI is specialty coverage that is not provided under the in-home business policy, homeowners endorsement, business-owner policy. It only corresponds to claims made within the active policy period.

PLI policies are developed on a claims-informed basis, which means the insurance is only good for the claims within a certain timeframe.

PLI will indemnify the insured against loss arising from these claims by reasons of all covered errors, negligent acts, or omissions that are committed in the regular conduct of the professional business throughout the policy period.

Incidents occurring before the policy are most likely not applicable to coverage, however, some policies might possess a retroactive date.

For instance, the retroactive date references that you are covered for incidents that occur on or after the specified data.

Whereas, the extended reporting period assists coverage for claims that have been filed within a period of time after policy expiration. This is generally two months of time, but the timeframe can be extended for a year or more at the expense of additional costs.

Your insurance provider will only cover claims made against the business during the period or within the extended reporting timeframe.

The claim must be from an omission or error that occurred after the retroactive date. That’s professional liability insurance.

PLI Policy Wording

Some policies are worded in a very specific way than others (more restrictive than others).

While the majority of the policy wording is developed to satisfy the minimum approved wording, which makes it easier to compare to other policies. Some policies differ tremendously in the type of coverage provided.

For instance, breach of duty can be included if the incident has happened, and was reported by the policy owner to the provider within the policy period.

Wordings with extensive legal variations can be quite confusing to non-lawyers.

For example, coverage for error, omission, or negligent act can indemnify the policyholder against circumstances or loss that has occurred only because of any of the three (negligent modifier does not apply to all three categories, though a non-legal reader might assume so).

Furthermore, a negligent act, negligent omission or negligent error is significantly more restructure, which would most definitely deny coverage for a lawsuit that has alleged non-negligent omission or error.

And that’s why the importance of a lawyer is so stressed by individuals in the community. The policy provider might not care for you to have legal representation, but without it, you might inflict unfavorable terms upon the security of your business.

PLI for You

Now that you know what is professional liability insurance, you are well on your way to determine whether or not it’s the right option for you.

However, for some individuals, it’s not really a choice, but more of a consideration upon which provider is the best for them.

If you’re interested in learning more about PLI or want to check out our policies, get in touch with us and we will happily accommodate your professional needs.