This is Why You Need Professional Liability Insurance

Have you ever felt overwhelmed by all the policy options that are available in the insurance marketplace?

You are not alone!

With all the various insurance policies out there it can be tough to discern which policies are truly essential for your unique to your Ohio business.

 

Standard and Industry-Specific Policies

Some insurance policies are standard for any operations:

  • A General Liability policy that protects you from general lawsuits and covers you against slip and fall claims, slander, etc.
  • A Property policy that protects your business property such as office equipment and the building if you own it.

Other insurance policies are more specialized and are only applicable to specific industries. These policies may include a Cargo policy for a trucking company; or a Public Directors and Officers policy for those companies that are about to go public.

One insurance policy that you have likely heard of is an Errors & Omissions insurance policy, also called a Professional Liability policy. This policy applies to businesses in many industries and can be seen as a requirement on a contract especially if you provide professional, specialized services.

In this blog post, we want to discuss the Professional Liability policy and shed some light on why it is an important part of your insurance portfolio.

Without further ado, let’s take a look!

 

What is Professional Liability insurance?

Before we talk about the “why” we should talk about the “what.” So what does a Professional Liability insurance cover?

In a nutshell, a Professional Liability (or an E&O) policy is designed to protect you from the lawsuits alleging negligent or wrongful professional services.

As with any liability policy, it covers the following costs associated with the defense of your claim up to the policy limit such as attorney fees (those alone can add up really quickly to staggering numbers); the administrative costs; cost to investigate the case, etc.

The policy will also cover the settlement amount.

It’s important to note that the policy will pay to defend your claim whether you are found guilty or not. The policy will respond even if the lawsuit is deemed a nuisance and is thrown out.

After all, you still incur all the costs listed above, except for the settlement, to investigate and defend your case.

 

Difference between General Liability and Professional Liability

Whenever we discuss liability policies with our clients, we often hear them use the terms General Liability and Professional Liability interchangeably. These two policies address very different exposures.

In fact, they each specifically exclude what the other policy covers.

Architects in office looking at construction project

As we already mentioned a Professional Liability (PL) policy covers lawsuits that are related to the professional services you provide. The common industries that are exposed to professional liability lawsuits are medical and legal, architects, engineers, design builders, tech companies and specialized services such as real estate and insurance brokers.

Of course, the list of those who may need such a policy is not limited to the industries above.

Most businesses have an inherent risk of professional exposure. If you provide any kind of specialized services, consult with your insurance broker to make sure your business is adequately protected.

A General Liability policy deals with lawsuits that are not specific to your services.

Examples of such lawsuit would include a slip and fall claim, a libel or slander claim, etc.  This policy is one of the most common commercial policies that most businesses purchase, and it specifically excludes any claims related to professional services rendered.

 

Professional Liability Examples

Before diving further into talking about Professional Liability insurance, let’s talk about a few notable court cases.

Case #1: Estate of Tinervin v. Nationwide Mutual Insurance Company:

In this 2009 Florida lawsuit, a pediatrician and his office were sued after his patient died following a treatment. The doctor’s medical assistant received a lab report that she misplaced and had not shown the doctor until three months later. The doctor concluded that he would have administered different treatment had he seen the report earlier.

Case #2: Novum Structures v. Larson Engineering

Novum Structures filed a lawsuit against Larson Engineering alleging that the engineering firm approved construction despite wrong calculations for the load-bearing welds.

Novum discovered the error after the glass atrium of the building has been constructed. According to the plaintiff, the construction was performed according to approved plans, and it would cost $5M to fix the mistake and cause significant time delays.

Case #3: Carlock v. Ocean Adventures and Sundive Charters

In this case, Mr. Carlock was participating in a scuba excursion with 20 other divers. The excursion moved on to another dive site, leaving Mr. Carlock behind. When he resurfaced, he found himself alone in the middle of the ocean. Five hours later he was spotted by a group of boy scouts and rescued.

The court decided that Ocean Adventures and Sundive Charters were negligent and awarded Mr. Carlock $1.68M in damages.

Common Denominator

So what do all these court cases have in common?

All of them are lawsuits that involve situations covered by a Professional Liability policy. In the case of the medical malpractice case, the defendant was found liable even though the doctor himself was not to blame.

As a business owner, you are responsible for the actions of your employees.

The other two cases portray a classic example of professional services gone wrong.

An engineering firm whose job it is to engineer the building and make all the appropriate calculations made the wrong calculation. They failed to catch the mistake costing the client millions of dollars.

And the scuba company left a person behind who was part of their excursion, which turned out to be a costly mistake.

 

Why do you need a Professional Liability policy?

Whether you are just starting your business from the ground up or are a seasoned entrepreneur, a lawsuit from an unhappy customer or vendor can hit you at any moment.

Nowadays, million dollar settlements are not outside of the norm.

If you are not adequately insured, that settlement along with all the other costs associated with the lawsuits will have to come out of your business or even your own pocket. Without insurance, a lawsuit may compromise both your business and personal assets.

A Professional Liability policy comes with a cost as does any other insurance policy.

Looking at your balance sheet, you might be reluctant to take on that additional expense. After all, any savvy business owner knows that trimming down expenses can boost your business’s success.

However, trimming down the wrong expense? Well, that can come back to haunt you.

Not only is defending a lawsuit an expensive ordeal but it is also nerve-wracking and chaotic. Not only does the insurance company cover the costs associated with the lawsuit but it also acts as your guide and advisor in this tumultuous time.

The insurer typically provides you with a 24/7 hotline full of resources on what to do if you are sued. You can also often take advantage of a loss control service where the insurer’s representative will review your business operations and advise you on steps to take to minimize the chance of the lawsuit.

The biggest advantage, other than the money, is that you are not alone. The insurer is in your corner, working with you to minimize the damage.

 

Conclusion

One way to minimize the chance of a lawsuit is a robust risk management plan.

A risk management plan is a key program to develop for your company. This document will typically outline your policies and procedures regarding onboarding new clients and steps to take in order to resolve client complaints.  

Unfortunately, even the best risk management plan is not a guarantee that you won’t be sued. No matter how hard you try, mistakes will happen.

Whether you are brand new in your industry or have years of experience something will slip through the cracks. Nobody is perfect.

Even the most knowledgeable and dedicated professional makes mistakes. Fortunately, most errors are not critical or you catch them before any damage is done.  

But sometimes, small mistakes turn into a big deal. That’s when your Professional Insurance policy becomes worth all the premium you’ve paid. 

Having a Professional Liability policy will allow you to keep your company running and afloat while your insurer and attorney (paid for by said insurer) work on defending your case. The claim hotline alone provides invaluable advice at a time of need as well as guidance through the process. 

Many business owners are reluctant to add another expense to the already strained budget.

The immediate question that you likely ask is "Can I afford the cost of the insurance?" But really, the question to ask is “Can I afford to pay out of pocket for the attorney fees, the associated costs, and the settlement if the lawsuit drags on for a year or more?”

 

We Can Help

Do you have a risk management plan in place?

You poured your life, blood, and tears into your business. Losing your business or at least severely crippling it is a genuine threat of a big lawsuit.

Don’t let all your hard work go to waste! Call us today at 1-800-3663 to create the perfect insurance portfolio to protect your Ohio Business. 

 

Kernan Insurance Agency

9932 Brewster Lane

Powell, OH 43065

 
Main office: 614-764-0121
Toll free: 800-718-2663
Fax: 614-764-0310
 

Office Hours:

Monday - Friday: 7:00 AM - 5:00 PM

Weekends: By Appointment