As a professional, you work extremely hard to give your clients your best efforts. Your business may involve giving advice or performing a service that customers constantly rely on. Despite your education, best efforts, level of care, and concern the reality is mistakes still happen.
A professional liability policy protects specialized occupations against mistakes that can happen during everyday operations. They can cover against administrative errors, misunderstandings about the service you are performing, leaving out important information, or not getting something done on time.
Certain occupations are especially prone to these types of errors: A lawyer, an accountant, a consultant, or even an insurance agent.
One of the questions you may ask is "why do I need a professional policy? Isn't a general liability policy enough?"
If we think about what a general liability policy covers, it really is designed to protect against two things. Property damage and bodily injury that you are negligent for. But what happens when a client incurs monetary losses due to poor service or failure to perform a necessary step during a provided service? You could be facing an angry customer and a big lawsuit.
Even if your advice or service caused no actual damage to a client, that person may still file a suit based on their belief that a mistake was made or they received inadequate service. This could be an expensive and time consuming endeavor if your business has to deal with it first hand. Your policy will defend you even if the suit is groundless.
Below you will find examples of when a professional liability policy could defend you.
Accountant: fails to file a client's tax return in time, resulting in penalties and interest owed.
Architects & Engineers: A project manager has an architect create blueprints for a new 200 unit apartment complex. Due to a lack of understanding of the town's safety codes, the plans did not take into consideration the correct window size for a means of egress in each unit. The builder on the project frames the building and orders 200 windows that are the incorrect size based on the blueprints. The windows can't be returned and the builder has to correct the openings on the building. The project manager sues the architect & engineer working alongside for the costly mistake.
Beautician: after completing a hair cut for a customer, a few days later they call back stating the haircut was absolutely awful. The customer thinks she looks hideous now and she can't be seen in public. She is also claiming that she is losing opportunities for jobs she applied for because she is too embarrassed to attend the interviews.
Insurance Agent: a client calls to have an insurance policy on a new investment property bound and issued. The policy by mistake never gets issued as directed by the client. Three months later, the property is completely destroyed in a total fire loss. The client sues the insurance agent for the loss of the property & cost to rebuild.
IT Consultant: an IT consultant recommends software for businesses that accept digital payments from customers. After purchasing and implementing the new software, an online retailer that sells clothing experiences a malfunction near the Christmas holiday; the busiest time of the year. It takes a week to fix the issue and the retailer claims they have lost thousands of dollars in sales from the inability to accept online payments.
Lawyer: a lawyer was hired by an individual in a personal injury case. In typical fashion, the lawyer put a date on his calendar one year ahead from the date of the incident to send formal suit papers to the negligent party. The lawyer fails to send out the suit papers within the statute of limitations. The suit is unable to be filed and the client has no case.
Real Estate Agent: a realtor is hired to list a property for rent and screen each tenant before renting the home out. The realtor fails to do a proper credit check on new tenant who has a sub 500 credit score. After two months, the new tenant cannot sustain the rent payments. The owner then has to go through the eviction process, losing 6 months worth of rent and having another gap between finding a new tenant. The property owner sues the realtor for her loss of income.
Professional Liability is a claims made policy. If you performed a service for a client three years ago and errors in that service are found today, the claim would get filed as if it happened today. So even if you had a different insurance policy three years ago when the work in question was actually completed, your current insurance company would be the one covering you. This is why it is typically a question on a new application whether there are any judgments or liens against you from previous years.