What is Professional Liability Insurance?

To err is human. Even professionals with the best intentions can slip up, have a lapse in judgment, or simply forget something. Unfortunately, such mistakes can be costly to your clients and customers, leaving you liable for upwards of millions of dollars in legal fees and damages. Professional liability insurance can help protect you from being on the hook following an error or breach of contract.

Professional Liability Insurance is an insurance policy that pays for damages done to others because of your failure to adhere to contractual obligations. You may be more familiar with the terms “errors and omissions insurance” or “medical malpractice insurance,” both of which are used interchangeably with PL insurance.

Professional liability (PL) insurance pays for damages to your customers or clients as a result of:

  • Negligence,
  • Malpractice,
  • Errors,
  • Misrepresentation,
  • Incomplete or inaccurate work, and
  • Breaches of contract.

In the event you receive a lawsuit for damages, PL insurance would pay for your legal defense and any damages awarded to the other party.

Because PL insurance covers errors and omissions, you’re protected from non-physical claims. In contrast, general liability insurance covers claims of bodily injury and property damage.

A customer tripping and breaking a leg in your store wouldn’t be covered by your errors and omissions insurance, but by your general liability policy.

On the flip side, an accountant who forgets to file a client’s taxes on time, causing the IRS to penalize the client for late payment, would be covered by professional liability insurance because the client would have suffered economic or financial damages — not physical.

Think of PL insurance as “white-collar” coverage and general liability insurance as “blue-collar” insurance.

Professional liability insurance protects you from claims asserting you failed to hold up your end of a contract, whether or not those claims have any merit. And remember: even if you did nothing wrong, you may still have to defend against a claim. After all, you don’t need to be a millionaire to get sued like one.

Some states or regulatory bodies may even require you to carry some degree of PL coverage. In other cases, clients or customers may refuse to sign a contract with you unless you’re covered by a PL policy.

With professional liability insurance, you can continue to provide your services and expertise with the knowledge that you’re protected from liability if something goes awry, from a human error you could never hope to account for to a breach of contract.