If you regularly provide professional advice or services, you can be sued — even if you do everything right. Do you have the right insurance to protect yourself?
Professional liability insurance, sometimes also known as errors and omissions (E&O) or medical malpractice, depending on the profession, protects you against claims of negligence, misrepresentation, or inaccurate advice. This includes expenses or legal fees required for your defense, as well as any resulting judgments against you.
It does not protect you if someone claims they were injured or their possessions were damaged at your place of business or due to you or your employees. That’s what general liability insurance is for. Professional liability also doesn’t cover copyright infringement, patents, trademarks or malicious, dishonest, criminal, or illegal acts.
Do you really need it?
Depending on your type of business or profession, some states, and many contracts require proof of professional liability insurance. Even if it’s optional, you should still discuss professional liability with your insurance agent if you regularly offer an opinion that clients could challenge or if a service you provide could result in financial or emotional distress.
Think of consultants, accountants, and other professionals who offer advice about the law, medicine, real estate transactions, building and remodeling, finances, interior design, or even beauty services. In all of these industries, there is room for the interpretation of facts and plenty of gray areas based on opinion. Your professional recommendations depend largely on your own experience, and you could be wrong.
Alternatively, you could be right. But if the client just isn’t happy with the outcome, they could try to find fault somewhere.
The truth is that just one client calling your service into question is enough to wipe out a career’s worth of hard work.
It’s all about the timing
Most professional liability policies are written on a “claims-made" basis, meaning you’re protected from claims that are made only when the policy is in effect.
However, for an additional cost, you may be able to select a specific retroactive date, which specifies how far back in time the policy will cover a claim.
- If you are changing professional liability policies, your new policy should be retroactively dated to when the prior policy started. This ensures that any work done before the new policy began will still be covered.
- If you have newly decided to carry professional liability insurance, you can have the policy backdated using a retroactive date to provide protection for previous work done when you were not insured. However, your motives in this scenario will be considered to make sure you are not buying and requesting a retroactive date to cover a claim you are just now anticipating.
- Be aware that retroactive dates may come with a higher premium because the insurance provider is taking on more risk. It’s typically best to begin professional liability coverage when you begin working in an applicable industry instead of waiting.
Your professional liability policy may also include an “extended period” of protection after the policy ends. This is generally a 30- to 60-day period, but you can increase the specified time to a year or more – for an additional cost. This provides a buffer if you decide to change policies or close your business but still believe a client may sue for prior services provided.
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