Business owners who make a living by providing advice or service to others need to consider purchasing professional liability insurance. Due to the specialized knowledge often associated with the service industry, small businesses in this space are exposed to accusations that their advice or mistakes led to a financial loss. Professional liability can protect you from those claims.
Sometimes, it can be confusing when discussing professional liability insurance because a policy can go by several other names.
- Traditional professions, such as architects and doctors, most commonly use the term “professional liability.”
- Other professions, sometimes called semi-professions, are more likely to use the term “errors and omissions (E&O) insurance.”
All these terms refer to the same coverage that functions in the same way.
8 Professionals Who Need E&O Insurance
The following is a list of professionals and semi-professionals who need professional liability insurance coverage or, at the very least, need to seriously consider it. This list is not exhaustive but rather is illustrative of why this coverage is so important. While only physicians, dentists, and lawyers are required by law to carry coverage (and then only in certain states), other business owners should consider the benefits that errors and omissions insurance can bring.
In the medical industry, professional liability insurance is called medical malpractice insurance. This insurance policy is for doctors, dentists, physical therapists, home healthcare providers, and nurses. Like all other types of insurance, there is no federal law that mandates medical malpractice insurance. However, Colorado, Connecticut, Wisconsin, Rhode Island, New Jersey, Kansas, and Massachusetts require physicians to carry a minimum amount of coverage.
Even if medical malpractice insurance isn’t mandated by law, hospitals and insurance plans can require it. Costs of malpractice claims continue to rise and remain high. Between 2006 and 2015, the cost of a malpractice claim increased by 64%, to an average of $54,165.
Another specialized type of professional liability insurance is legal malpractice insurance. This is designed to protect lawyers if they’re accused of negligence. Only Oregon and Idaho require attorneys to get legal malpractice insurance.
If you are a lawyer employed by a corporation as an in-house counsel, there is a special type of insurance called employed lawyer professional liability insurance available.
Mistakes in an architect’s work can lead to costly problems for them and their clients. Because they design and renovate buildings, architects typically need professional liability coverage in case a client alleges that their plans did not match the client’s expectation or fall short of sound architecture practices.
For instance, an architect might be sued if their design is unworkable or fails to meet project specifications. Plus, architects often take on other roles, such as project coordinator, and may be sued for failing to get permits, cost overruns, or not completing vital tasks.
Architects who work for a firm may still want to look into getting their own policy. While the firm’s professional liability usually extends to its employees, the coverage may be limited to a specific set of work tasks. Having your own policy ensures you’re fully covered. In this situation, it is worth taking the time to speak with your employer and an insurance agent.
Similar to the situation architects may face, engineers can be accused of not using sound engineering principles when planning a project. For example, clients may sue if they believe your miscalculations caused anything from cracks in the drywall to a wall collapsing. It is important to remember that even if the accusation is false, there is still a cost associated—and it can be a pretty hefty amount.
While professional liability insurance coverage for counselors isn’t typically required for licensure, mental health professionals should still consider getting this coverage because of the intimate nature of their work. The combination of personal conversations, private settings, and professional advice puts counselors at risk.
Therapists who are employees are typically covered by the business’ E&O insurance. However, they may want to consider their own coverage.
Churches should consider this coverage for pastors, too, as they often provide marriage counseling to couples. If the counseling doesn’t work and the couples proceed with a divorce, the pastor may be called on to testify—sometimes by both spouses in the same case—related to advice offered.
Accountants operate in an area of special risk because a mistake can lead to significant financial losses for their clients. Clients often look for someone to blame when things go wrong, and the person in charge of the money is usually a good target. E&O insurance protects accountants in this situation, even when the accusations are without merit.
While consultants don’t face as great a risk as other professions on this list, they aren’t immune to professional negligence claims. The term “consultant” has a wide range of applications, from a change management consultant for businesses or an interior designer.
However, your degree of risk—and therefore the cost of your consultant professional liability insurance—is greatly impacted by the type of consulting you perform. For instance, consultants who provide financial advice, such as investment consultants, often pay more for their coverage than interior designers.
Contractors operate in a coverage gap between professional liability and general liability insurance. This gap can expose construction businesses and contractors to lawsuits.
Let’s say a carpenter uses shoddy screws to build a staircase, which collapses while the homeowner is standing on it. The carpenter’s general liability policy will most likely pay for the homeowner’s injury, but rebuilding the staircase isn’t part of its coverage. However, a contractor’s E&O covers claims alleging faulty workmanship, errors or omissions in designs, and the use of poor materials.
Ultimately, if you are a construction contractor, take the time to review your policy with your agent. This helps you ensure you have coverage for the many different, and often complex, scenarios your business may encounter.
Professional Liability Insurance Coverage
Professional liability insurance is a useful coverage for businesses in the service or advice sector because it pays for your legal defense if a client claims your work caused them to lose money. Professionals need to live up to a generally accepted standard of care, and clients may sue for negligence if they think you’ve failed to meet it. Professional liability covers these claims by paying for attorneys, court costs, and judgments or settlements in the case.
Businesses that need professional liability insurance can face negligence claims like:
- Making work errors and omissions: For example, an accountant makes an error on a client’s balance sheet or an information technology (IT) consultant omits key steps in a client’s security program.
- Providing inaccurate advice: In some industries, like medical practitioners, advice is a fundamental part of the business.
- Failing to provide services as promised: For instance, an architect’s design does not match project specifications.
Professional Liability Insurance Requirements
Professional liability coverage is required for some professions. For instance, some states, like Kansas and Colorado, require physicians to carry medical malpractice insurance, a type of professional liability.
While malpractice insurance isn’t required for lawyers in most states, a growing number of states are making it mandatory for lawyers to disclose to their clients if they do not have malpractice insurance.
Under the Federal Acquisition Regulation (FAR), if your small business wants to do any work on a government project, you may be required to have a variety of policies—including professional liability—depending on the nature of your work.
Frequently Asked Questions (FAQs)
Whether or not you need E&O insurance depends primarily on your profession. While some states require doctors and lawyers to carry professional liability insurance, only a few other professions have a mandate; and even then, requirements vary by state. That said, business owners you work with may require errors and omissions insurance, so it’s a good idea to check your contracts.
For most small business owners, professional liability insurance costs anywhere from $980 to $1,700 per year. However, premiums vary greatly depending on industry and discipline. Medical professionals, for example, often pay $4,000 per year but can pay much more if they’re in a high-risk specialty like surgery. Other factors include business size, location, and the coverage limit.
There are multiple ways to acquire professional liability coverage for a small business. You can purchase it through an agent, via a broker and, in some cases, directly from a provider. Professional liability is a bit more complex than some other types of insurance, so it’s a good idea to speak with an expert during the process who can answer your questions.
Even though it isn’t often required by law, professional liability insurance is so important for anyone whose specialized training or expertise represents the heart of their business operations that it should always be seriously considered. If your small business provides services or advice, it is vulnerable to the costly allegations of professional negligence that errors and omissions policies typically cover.
Simply Business is an online digital marketplace that can help you find professional liability insurance providers. After answering a few questions about your business, it will generate multiple quotes from top providers for you to compare. If you have any questions about what to purchase, it has experts available to help guide you through the process, or you can simply buy your policy online.