November 21, 2020
Who Doesn’t Need Professional Liability Insurance These Days?
Doctors, lawyers and accountants aren’t the only people who need professional liability insurance.
All kinds of people need professional liability coverage, including financial analysts, corporate trainers, numerous types of consultants and law enforcement professionals. Even FBI agents.
According an article in Law Enforcement Today, “FBI agents tasked by fired former Director James Comey to take down Trump during and after the 2016 election were so concerned about their potentially illegal behavior that they purchased … liability insurance less than two weeks before Trump was inaugurated as president.”
Forty percent of individuals and businesses believe they may have professional liability risks but have not purchased insurance for it, according to a recent survey of small business owners by The Hanover Insurance Company.
Over the past twenty years there have been many changes in the ways businesses interact with customers and they may be surprised to discover they now have a gap in their lability coverage. Many businesses don’t realize that their general lability does not cover professional liability (PL) exposures.
In addition to lawyers, doctors and accountants, many businesses now need PL insurance. You don’t have to consider yourself a “professional” to need coverage for negligent acts. If you give advice and recommendations, if you create programs or products for your customers or if you provide a service, you need liability protection.
And it’s not just you who could be the cause of the alleged negligent act. Your business can be sued for any alleged wrong or error committed by any employee representing your brand, including temporary staff and independent contractors.
For example, suppose a professional photographer hires a temporary assistant for a job. If the photographer’s assistant is alleged to have been negligent or have committed an act of libel or slander against a client, professional liability insurance could protect the photographer’s business from unexpected legal expenses.
There are risks involved in hiring temporary staff and independent contractors, but the operational and financial benefits often outweigh them.
Defense Costs
One of the most important reasons to carry professional liability (also referred to often as errors and omissions) insurance coverage is for defense costs.
In the medical field, where you find the most extreme examples of costly lawsuits, 65 percent of claims are withdrawn before trial and 90 percent of claims that go to trial are denied, according to the Physicians Insurance Association of America. Nonetheless, it costs an average of $120,000 to defend frivolous cases.
Tailored Coverage
Whether you buy a PL or E&O policy, it usually will be tailored to the specific needs of your business classification. For instance, a policy for real estate brokers typically includes coverage for failure to advise clients on the existence of fungus, asbestos or bacteria. Policies for accountants might provide coverage for acting as a trustee or administrator of an estate. Some policies also cover inadvertent transmission of computer viruses and corruption of customers’ data.
Examples of other professionals who need protection include:
- Architects and engineers
- Bookkeepers
- Certified financial analysts
- Dog groomers
- Home inspectors
- Landscape architects
- Optical and hearing aid professionals
- Printers
- Social workers
- Software companies
- Veterinarians
Many insurance companies offer group policies to members of trade associations. In other cases, insurance companies form buying pools that professionals can “join.” Miscellaneous professional liability coverage is also available for a variety of businesses such as translators, meeting planners, publishers, and collection agencies. If you need coverage, we can advise you on the best approach.
Sole proprietors may choose to protect their personal assets by forming a limited liability company, but their corporate assets are still at risk unless they buy E&O coverage.
Claims-Made Policy
It is important to understand that most PL and E&O policies are written as “claims-made,” which means the policy only covers claims filed during the policy period. A few companies offer occurrence-based policies, which cover any qualifying claim arising from an incident that occurred during the policy period — no matter when filed. If you switch from a claims-made to an occurrence policy, you must make sure you don’t create a gap in coverage.
In specific situations, a claims-made policy may allow an extended period for reporting claims: when an insured dies, retires or becomes permanently disabled. This is an important feature because new claims can be filed years after the policy period. To qualify as a retiree, the insured usually has to be at least 55 years old, and he/she has had to maintain coverage with the same insurance company for several years — something to plan for if retirement is in your near future.
If you have any concerns about the liability coverages for your business, please give us a call.