What is professional liability insurance?
Professional liability insurance protects businesses that offer professional services from the cost of claims for negligence, as well as breaches and omissions of professional duty. Also known as professional indemnity insurance, it is designed to ensure professionals can make decisions or judgements that they believe are right at the time, based on the information available.
It also protects businesses in which employees act unscrupulously, without the knowledge of management. If injury or damage occurs to a third party because of these actions, the compensation payment and legal fees may be covered by the insurer.
A professional liability policy can provide financial support in situations where advice may not be perfect, or if there’s unintentional injury caused by oversight. It may also help cover claims related to breaches of intellectual property rights.
Additionally, the policy might offer protection in cases of misleading conduct, honest mistakes or faulty designs. It’s important to understand that while the policy can assist with certain costs, such as compensation payments up to an agreed amount, it does not cover criminal charges against the business.
What types of professional liability coverage are available?
Professional liability insurance can be tailored to the business’s industry or operations and contain the inclusions that are most relevant. IT and management liability are two common types of coverage that apply to any business.
IT incidents
Cyber or IT liability insurance protects businesses from damage occurring from a cybersecurity or IT incident. For example, a business may be professionally liable if hackers obtain private information about clients and publish it publicly, causing distress to clients. Or, a software developer may incorrectly format software that creates unexpected and unreasonable costs for clients.
Management liability
This type of insurance can help protect businesses if management is found to be responsible for unintended damage or injury, such as not maintaining a fully safe working environment. It may also offer some protection in cases where there are concerns about fraudulent actions or theft by employees, especially when these issues happen without management’s knowledge or consent.
Industry-specific professional liability policies are also available. Two common types of insurance coverage are design and construction and medical malpractice.
Design and construction
This type of insurance protects a business that has completed design or construction work, such as at a new office building, that does not meet the agreed standard and cannot be easily repaired.
For example, a concreter may perform work that does not meet the agreed standard, but it is not noticed until other building work is completed around it, and it cannot be replaced without significant and costly repairs. The concreter may be found professionally liable for the repair costs.
Medical malpractice
Medical malpractice insurance is not just available to medical professionals, such as surgeons and doctors, but other healthcare professionals, too. Social workers, physiotherapists and psychologists are just some of the healthcare professionals who may be protected from medical malpractice with this kind of insurance.
If they inadvertently cause injury or distress because of their treatment, such as exacerbating an injury or injuring a patient, they may be professionally liable.
Do you need professional liability insurance?
A range of businesses may require professional liability insurance, from sole traders through to large organisations. Professional liability insurance is a legal requirement for some occupations, including real estate agents, healthcare professionals, accountants and architects. They must hold insurance before they can operate.
For others, professional liability insurance is an individual choice. It can be useful if you have employees acting on your behalf, as your business will not suffer the financial consequences if they make a mistake. It can also be useful for sole traders, who often do not have the cash flow or turnover to cover the high cost of legal fees and compensation payments.
Some organisations, however, do require their suppliers and contractors to hold their own professional liability insurance so that they are not liable for poor advice and service. If this is the case, this will be outlined in your contract or supplier agreement with them.
While professional liability insurance will protect you if you make an error or inaccurate advice is given, it may be particularly beneficial if you are wrongly accused in a claim. It can help you to defend your business in court, ensuring minimal financial disruption to your business.
Professional liability insurance may be something that you think you will never need, but it may save you millions of dollars if the unexpected occurs in your business. Just like many other types of business insurance, consider your individual circumstances and assess quotes carefully to ensure whether it is the right move for your business.
