About Professional Liability Insurance

By Susan Landis-Steward , last updated February 3, 2012

If you are a professional, you will most likely need to carry professional liability insurance. This insurance, sometimes called Errors and Omissions Insurance, will protect you in the event that you are sued for any errors that may cause a client harm. Doctors, dentists, mental health providers, architects, lawyers, engineers, real estate agents, accountants, and many other professionals are among those who should carry this insurance. In some cases, this insurance is also known as malpractice insurance. Basically, if you are in a profession where your actions, purposeful or accidental, could harm someone financially or physically, you need this insurance.

If a client or patient files a suit claiming that you caused them financial or physical loss, your professional liability insurance will cover certain losses. The insurance is sold on a "claims made" basis which means it will only cover claims for things that happened when the insurance was in effect and those claims must be filed while the insurance is in effect. So if something happened before you had the insurance, it is not covered. Likewise, if something happened while the insurance was in effect, but the claim was made after the insurance lapsed, it will not be covered. In the latter case, you can sometimes arrange for an extended reporting period that will cover you after the insurance is terminated, say in the case of retirement.

Professional liability insurance is usually sold in increments of $1 million with deductibles per claim ranging from $1000 to $25,000. Professional liability insurance also frequently has exclusions that limit what is covered. Before purchasing such insurance, you should think about what the most dangerous worst-case scenarios are in your field and make sure those are covered. For example, a physician may want to be covered in case a patient dies or is permanently injured as a result of a mistake the physician makes. An engineer may need coverage in the event an engineered structure fails and causes injuries or other financial loss. An attorney may want to be covered in the event a client loses financially but can prove it was due to something the attorney did or didn't do. Even EMTs and some teachers should consider coverage if their employers don't provide it for them.

Note that professional liability insurance is separate from general liability insurance that businesses should carry. General liability covers things such as a client slipping on a wet floor, a product that fails to perform as specified and injures someone, or a bystander or personal property being injured as a result of actions by your employees. Professional liability insurance covers accidental, negligent, or deliberate errors made by the practitioner himself.

If you are in a profession requiring professional liability insurance, you should carry it the entire time you are in business. Given the tight wording of most professional liability insurance policies with regard to what they will and will not cover, it is dangerous to let this policy lapse, even for only a short period of time.

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