Why do I need Professional Liability Insurance or Errors & Omissions Insurance?
As a professional, is my formal education, training and my good faith efforts put forth with every client enough to defend against Errors & Omissions?
No! It is not enough to cover your negligence to others. As a professional you do not want to risk everything you have spent your lifetime building to a jury of twelve citizens and their value system. As a professional you may be seen as wealthy and able to afford the judgment render against you, when nothing could be further from the truth. Every person, no matter their training, or how well intentioned they are, is capable of committing an act of negligence. Mistakes happen every day and Professional liability insurance is there to protect you, your assets and indemnify the injured third party.
Is the general liability coverage that I already pay not enough coverage for me and my business?
The general liability coverage specifically excludes professional liability coverage (aka e&o insurance or error & omissions/errors and omission) because professional liability insurance is better covered under a policy specifically designed to respond to the professional in question. The general liability will not respond to a professional claim for damages because the coverage is excluded under the general liability policy. As a professional you need your errors and omissions coverage to provide protection for your negligence.
Companies that provide a service such as accountants, lawyers, engineers, and insurance brokers purchase E & O insurance to protect them from their alleged failure to perform on the part of, financial loss caused by, and errors & omission in the service or product sold by the professional. Professionals are held to stricter standards and with the litigious legal climate we are in, the professional is a target.
Medical Malpractice insurance in designed to cover the negligence of those professionals in the medical field (e.g. doctors, nurses, and other medical providers). Nearly all states require that physicians have professional liability insurance to cover their negligence and to indemnify the injured third party. Even in states that do not require physicians to carry Medical Malpractice coverage they must do so to receive privileges to see patients at a hospital.
If various professionals are going to practice, they are required by law, contract, or they just see the absolute folly in not having professional liability coverage to protect them from the groundless suits filed by individuals who feel they are owed something. The twelve-jury members who feel sorry for the individual and award him/her money/damages may do so more out of pity than out of actual circumstances. These professional cases can take an extremely long time to settle and can rack up large legal fees that could cause financial hardship for your business.
Review your policy carefully because defense can be inside or outside the policy limits. Inside the policy limits means that both the defense and any award to the plaintiff will come out of the same limit. The cost of defense in some cases can exhaust the limit and leave nothing to pay the award. Outside the limit means the cost of defending you and your business is picked up by the insurance company and you still have your policy limit to pay any awards. If you can get defense outside the limit that is the best practice for a professional and keeps you from having a financial drain on your business’s resources.
Most coverage written for a professional liability is done so on a claims made basis, meaning that the policy only covers claims made during the policy period. You can purchase tail coverage in some events which covers claims made before your retroactive date. Claims made policy was designed to cut down on unreported claims that showed up twenty years after the event happened. You can purchase tail coverage to protect from the incurred but not reported claims. Professional liability policies do not provide coverage for criminal prosecution nor all forms of legal liability under the civil law, only those specifically enumerated in the policy.
As a professional who has achieved a high degree of success, you want to protect your family, your assets, your good name, and do the responsible thing in being able to indemnify third parties for your negligent acts when it is warranted. For these reasons, we recommend that you purchase professional insurance and have a good night’s sleep.