If you provide professional advice or services, you can be sued — even if you do everything right.
If that should happen, do you have the right insurance to protect yourself?
Professional liability insurance, sometimes also known as Errors and Omissions (E&O) or medical malpractice, protects you against claims of negligence, misrepresentation or inaccurate advice. Some professional liability policies include expenses or legal fees required for your defense, as well as any resulting judgments against you. Others may not.
Do you really need it?
Depending on your type of business or profession, some states and many contracts require proof of professional liability insurance. Even if it’s optional, you should still discuss this coverage with your insurance professional as part of reviewing your business exposures.
Think of consultants, accountants and other professionals who offer advice about law, medicine, real estate transactions, building and remodeling, finances, interior design or even beauty services. In all these industries, there is room for interpretation of facts and plenty of gray area, based on opinion. Your professional recommendations depend largely on your training, education and experience, and could be challenged.
Sometimes, it could just be an unhappy client who files a claim and even one claim could be enough to wipe out a career of hard work, and result in damage to your reputation.
It’s all about the timing
For professional liability policies that are written on a “claims-made” basis, you’re only protected for claims that are made when the policy is in effect or covered by an Extended Reporting Period – also known as an “ERP” or “Tail.” *
However, for an additional cost, you may be able to select a specific retroactive date, which specifies how far back in time the policy will cover a claim.
- If you are changing from one claims-made professional liability policy to another, your new policy should be retroactively dated to match when the prior policy started. This ensures that any work done before the new policy began will still be covered. Always keep the original retroactive date.
When carrying forward a retroactive date it may result in a higher premium because the insurance provider is now taking on more risk.
*Your professional liability policy may also include an automatic ERP after the policy ends, and offer an opportunity to purchase a longer (sometimes unlimited) reporting period for an additional premium. This can provide protection for a claim made after your policy has been canceled. It also protects against claims that could be made in the future and are still within the statute of limitations.
Know the details
Not all PL policies are the same, so you’ll need to compare your options to know which is right for you. In addition to the questions regarding the necessary coverage period, be sure to ask:
- Are legal and defense costs included in your Primary policy limit?
- “Defense Inside the Limits”, which may deplete your total policy limits.
- “Defense outside the limits”- meaning they do NOT reduce your primary limit.
- Are you fully covered for a claim that is filed during your active or extended reporting period, but occurred prior to that period? An appropriate retroactive date can address this.
- Does the policy automatically cover anyone working on behalf of your business (both employees and subcontractors), or must all individuals be specifically named?
- Are there any policy exclusions, or does the policy cover only specifically named risks?
The cost
Your premium for professional liability protection depends on your unique situation. Your industry, your claims history and the types of services you provide will impact how much you pay. If you are considered a higher risk, this will be reflected in your premium.
If you are concerned about the monthly premium, talk with your insurance professional about cost-saving strategies, including evaluating options regarding deductibles, a possible reduction in policy limits, or a change to the categories of coverage.
In addition, remember that the IRS categorizes insurance policy premiums, including those for professional liability, as a business expense. Therefore, you may be able to deduct your premium payments when you file your taxes.
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This content is for informational purposes only and not for the purpose of providing professional, financial, medical or legal advice. You should contact your licensed professional to obtain advice with respect to any particular issue or problem. Please refer to your policy contract for any specific information or questions on applicability of coverage.
Please note coverage can not be bound or a claim reported without written acknowledgment from a OneGroup Representative.
Written content in blog post: Copyright © 2023 Applied Systems, Inc. All rights reserved.