What is Professional Liability Insurance?
A professional liability insurance product is designed to protect professional service firms and individuals in the event of allegations of professional negligence.
What are the duties and expectations of a professional?
To perform professional duties to the accepted standard of care or due diligence relative to their education, accreditation, and professional standing.
To have those services performed timely, efficiently, and professionally, consistent with their professional standing.
Professionals vs. Quasi Professional
Expectations and insurance requirements change whether you’re deemed as a Professional or Quasi Professional.
Who is a professional?
Defined as someone who has pursued a course of study, has successfully obtained a professional designation in a chosen field of study, is deemed professional under the law and follows an industry standard of care.
Examples include lawyers, accountants, and financial planners. It has expanded to include website designers, graphic artists, prepacked software developers, and more.
Who is a Quasi Professional?
They have ‘hands-on training in a specific field and may not have an industry standard of care to compare their experience. These could include people who refer to themselves as consultants in an area where they were previously employed.
It also includes construction workers and plumbers where a building code could be interpreted differently from one inspector to the next.
Couriers also fall into this category as they are responsible for delivering a package within a specified timeframe. Because they can’t guarantee delivery time, it is a business risk more than a professional liability risk.
Quasi Professionals and CGL policies
It is more common for quasi professionals to seek out a commercial general liability policy (CGL). The CGL policy covers bodily injury and property damage that may lead to a financial loss. Contractors and plumbers are more likely to suffer a loss of this type than one related to a financial loss resulting from professional services offered. That latter kind of loss is for professional errors & omissions.
Quasi Professionals may still require errors & omissions insurance. If that’s the case,, they usually require an industry standard of care that the insurance carriers can review.
What do they mean by “standard of care”?
Standard of care is commonly determined by the action (or inaction) a reasonable, professional person with similar training would take in a similar situation under similar conditions.
What are the expectations of a Reasonable Person?
- They act honestly and consider the best interests of their client,
- They exercise the level of care, diligence, and skill expected of an individual with comparable knowledge and training,
- They consider possible risks that could result from their work.
How do professional liability policies work?
Professional liability and errors and omissions policies are underwritten on a claims-made basis. Claims Made covers alleged claims made while the policy is in effect. Once the policy lapses, coverage is no longer in place. A claims-made basis policy is why it is important to maintain continuous insurance.
A retroactive date will attach to most professional liability and errors and omissions policies. The retroactive date is generally the date the Insured first purchased and continually maintains professional liability and errors and omissions insurance.
The policy covers defense & settlement costs as well.
Regardless of whether the Insured is deemed at fault, the policy will pay defense costs related to the investigation or defense of a covered claim. Expenses covered include legal fees, expert witness costs, and costs of a mediator or arbitrator. If the insured is found at fault (negligent/guilty), the policy will pay an indemnity to the claimant to make the claimant financially ‘whole.’
What is Errors and Omissions Insurance?
This type of insurance policy is designed to protect individuals or firms who hold themselves as experts in their chosen field. They receive a fee in return for their expertise.
These professionals may be held accountable by a third party when their advice does not meet the client’s expectations.
Some examples of potential errors & omission risks for professionals include:
- Human Resource Consultant
- Incorrect HR advice given to a nonprofit and once implemented caused a financial loss.
- Failure to adequately check references before hiring a candidate for a third-party client
- Interior Decorator
- Design a storefront that is not ADA (link) compliant and causes the store owner a financial loss.
- A recommended model unit is incorrectly decorated, which failed to attract buyers to the development project.
- Project Manager (non-construction)
- The end deliverable as set out in the project scope ended up being unusable.
- Failed to document the requirements of the project well.
What type of insurance do you or your firm require to be adequately protected? Do you have a professional liability risk, errors & omissions risk, or business risk? To better understand the right coverage options for your situation, we invite you to reach out to our team to discuss.