There are many different names for professional liability insurance. In the medical and legal fields it’s known as malpractice insurance. In other professions it can be called errors and omissions insurance or E & O. It covers professionals whose mistakes while providing their services that can cause harm to another.
The types of mistakes or omissions that are made in most professions can be costly to defend against, even if the claim is ultimately dismissed. Each professional liability policy is unique, depending on the professional services that are provided by the policy holder, so each will have their own defined coverage and exclusions.
When a professional applies for the insurance, the premiums are based on several different factors. Before the cost of the insurance can be quoted, the company must analyze the risks of the applicant. This will include information that may vary from company to company and from policy to policy.
Information Used to Determine Cost
Type of Professional Services Provided: The types of service that you provide to your clients will drive the choice of the insurance policy that you choose. A real estate agent will need a different type of insurance than a structural engineer, for instance. The services could lead to allegations ranging from copyright infringement to personal injury cases that allege slander or libel. In many cases, the allegations made against you could be more serious, depending on your profession.
Number of Professionals Providing Services: If you rely on others to offer your services, errors and omissions policies should include coverage for claims made against you that may have been caused by an independent contractor or an employee. Each policy should be written to make sure that you are covered against claims that cover your risks that may have been due to the services of either employees or subcontractors. Many times you may provide services for others and be drawn into litigation because of the claims against the other party. If this is the case, you could be unprotected if you do not carry the right insurance policy.
In addition to knowing what type of coverage you need for liability protection, other factors that will determine the cost of the policy will be the state where you provide your services, your annual revenues and your history of claims and loss.
Some insurance companies will require that you also provide them with financial statements and give information about the management of the company before they can offer you a quote so that they are better equipped to analyze the risk that you will present to them.
Some companies offer coverage of a new claim that comes about from a service that was provided in the past, even before the company insured you. This protection will be factored into the cost of the policy.
The claims that professional liability insurance covers must allege that there has been negligence on the part of the service provider that is negligent or that the policy holder has failed to perform the professional service. Unless fraudulent or illegal acts are proven, or intentional error or omission is proven the insurance will cover damage awards and legal costs. Most policies will not cover punitive damages that may be awarded.
Will all providers use the same information to determine costs? While most companies will use the same basic information, other companies demand additional information to assess the risk that writing a policy would expose them too. Shop around and compare before choosing the policy that offers protection for every instance that may subject you to a claim.