Professional Liability insurance, otherwise known as Errors and Omissions Insurance (E&O Insurance), is a sought after insurance coverage by several service providers like medical providers, attorneys, consultants, financial service providers, among many others. Service providing firms like accounting firms are often drawn into difficult court cases for an error or omission on the part of their employees. If the client had to suffer a financial loss because of an error on the part of an employee (error) or an employee failed to perform a particular service (omission) the long drawn legal cases arising could drain both the finances and reputation of the firm. Unfortunately, frivolous cases are common because it costs nothing for a plaintiff attorney to accuse the business. Even with world-class resources, a frivolous case is still a massive distraction to the business.
What is Lawyers Professional Liability Insurance?
Lawyers professional liability insurance is a type of insurance for business owners to protect themselves from claims that may arise by your client for negligence or malpractice.
Lawyers professional liability insurance is written on claims made and reported policy basis. Meaning for there to be coverage claims must be made and reported to your insurance company during the policy period. The policy also provides an attorney to represent you. It’ll pay, on your behalf, the cost incurred for your defense, as well as any cost incurred in an indemnification or settlement.
In an interview with Joe Barnard of ProDefender a leading company that underwrites professional liability insurance for attorneys, Joe explains more.
“Let me give you an example. You’re a new attorney just out of law school, opened up your own shop. You’re in practice, and unknown to you, there’s an error in some of your documentation. Three years later, your client finds out that there was an error and they’ve been damaged. At that point, they’re going to file a claim against you. In order for you to have coverage, you’re going to need to report that claim to your current insurance carrier, and provided that you’ve had continuous coverage since the inception date of your first year’s policy, that claim will be covered, notwithstanding the fact that it happened during the first year of your practice.”
Most businesses achieve success and function efficiently because of their talented employees. These employees may be the best in the business; however, they can also make mistakes. It is logical to want to protect your business and its employees with solid professional liability insurance. There are countless stories of providing good work and delivering services as per the engagement letters, and yet businesses are still at risk of being slapped with a costly professional liability claim. A lawsuit can be the result of a myriad of sources; here are a few of them mentioned below:
· Alleged errors,
· Professional negligence,
· Breach of professional duty,
· Misleading or misinterpreted statements, and
· Performance-related claims.
Professional liability insurance will protect you against the legal costs, discovery costs, and damages associated with claims against you or your employees in the course of providing accounting services. As some business owners have already seen, having this type of insurance coverage is strongly recommended for all business owners, especially when there are financial implications.
A specialty insurance broker in such situations is invaluable for a business owner. They have the expertise of both areas of business and hiring one is only to your advantage. Often, shopping for insurance can be laborious and sometimes seem futile because insurance usually requires a broker. A specialty broker does all the legwork on your behalf to find the best Errors and Omissions Insurance (E&O Insurance) while you focus on adding clients and doing what you do best.
What Does Professional Liability Insurance Cover?
If a business is being sued on account of errors committed by the employees, then professional liability insurance typically would cover the compensation payments and legal fees. The component of the compensation payment usually considers the financial loss the client had to bear. This particular insurance policy normally protects the firm against professional negligence, unintentional confidentiality breaches or copyright, and loss of documents or information. It is important to note, this type of insurance policy does not cover any cost of reputational damage as a result of the error or omission on the part of the employees.
Bodily Injury –The professional liability insurance can cover
third party cover of the cost of the injury sustained, only if the injury is sustained because of negligence on the employees’ part to perform his or her professional duties. The insurance policy covers any personal injury, property damage or financial loss, caused by errors or omissions while performing professional duties.
Consequential Loss –Consequential losses is a financial loss suffered by the client that indirectly is because of your negligence. However, this should be cross verified with policy documents for any exceptions.
Contractors – Any compensation claim as a result of mistakes made by your contractors (noted in the insurance policy) are also covered in the professional liability insurance.
Defamation – Professional liability insurance generally covers unintentional defamation, but it is best to verify it with the policy document.
Budget Overruns – Any budget overruns caused by employee’s negligence are covered by the policy. However, this is a grey area; hence it is recommended to refer to the policy documents.