If you own a company that provides professional services, such as accounting, protecting your business against costly mistakes is essential. Professional liability insurance can minimize the impact of lawsuits and damage claims stemming from errors and omissions you or an employee might have made that harmed your clients.
Now, you may be asking yourself, are professional liability and e&o insurance the same thing? While they offer the same coverage, the term for this type of insurance varies based on the industry. For example, a real estate or insurance professional may refer to this coverage as E&O insurance, while a consultant or architect may refer to it as professional liability insurance.
This coverage goes a step further than a standard general liability policy, so before you opt to skip it, check out these seven reasons why you should not.
It Enhances Your Business Owners’ Policy
Also known as errors and omissions coverage, professional liability insurance enhances your current business owner policy (BOP). When you fail to complete a project or an employee makes a critical error, this coverage will shoulder the damages owed to the customer and your legal fees.
General liability does not offer this level of protection because it focuses on bodily harm caused by your company and team. What is more critical about professional-level insurance is it adapts to the industry you work in, for example:
- Attorneys who are accused of not representing their clients adequately, resulting in legal harm to the client.
- Accountants who made an audit-triggering mistake on tax returns.
- Architects who made a critical error in a blueprint leading to structural destabilization.
- A hairstylist causes scalp burns to a client’s hair due to improper application of coloring treatments.
- Dry cleaners that destroy a wedding dress a customer brought for cleaning and storage.
As human beings, we make mistakes, but that does not mean you should lose your livelihood. On the contrary, professional liability policies protect your reputation and finances so you can still have the opportunity to find success.
It Only Takes One Mistake to End Your Business Dreams
Owning a company comes with many risks, but none are more devastating than those involving mistakes. Just one lawsuit could impact the entire future of your business. When such incidents occur-from minor contract omissions to failing to follow through on your project obligations-your financial well-being is at stake.
Without appropriate safeguards, it is impossible to ensure that you have adequately shielded your company against damage claims and reputational fallout. Before letting the cost of your additional protection change your mind, consider how much it would cost to shoulder the entire financial burden of a lawsuit and subsequent compensation award on your own. In the long run, it is more affordable to carry this essential coverage. Rather than risking these devastating losses all by yourself, purchase additional insurance that can limit the financial and emotional burdens of lawsuits and bad publicity.
Bolster Your Brand’s Reputation
Believe it or not, carrying professional liability insurance shows potential customers that you take your services and business relationships seriously. In addition, providing this safety net demonstrates that you can handle any errors that might arise during a contract. It is hard to find companies that genuinely hold themselves accountable, so this coverage can further strengthen your reputation in a competitive industry.
You Are Always Prepared for the Unexpected
No matter how much business risk you minimize, too many factors are involved to avoid every possible mistake. Life is unpredictable, and professional liability insurance can help cover those moments when your company experiences an unexpected situation that leads to an error when providing your services to trusting clientele. Your company will be prepared and protected in conjunction with ongoing safety training, improvement in processes, and insurance.
Your Business Classification Isn’t Always Enough
When you formed your company, you may have chosen its entity structure based on built-in protections. However, it’s essential to understand that while your personal assets may be shielded if your business gets sued, legal costs and damage awards will still have to be paid. Where will the money come from if you do not have enough corporate assets to pay for it? Probably your personal finances! E&O coverage ensures this does not happen.
Create Long-Term Stability for Your Business
Professional liability insurance does more than pay for damage claims and legal fees; it defends your reputation. Frivolous lawsuits are a frustrating risk your company could face, and even if you win in court, the harm caused to your brand’s image can be devastating. Commercial viability is strengthened by adequately insuring your business against these situations because you have the support necessary to overcome the financial and social downturn they cause.
Business Contracts May Be Contingent on Having E&O Coverage
Many business sectors require companies to have professional liability insurance to operate. Medicine is one such industry and often has this coverage mandated at the state and/or federal level. But, outside of legal demand, you may also discover that other companies you collaborate with may not be willing to contract with you without having this insurance.
Residential construction is an excellent example of this reality. There are typically multiple contractors involved when building a new home. The builder may require each to have a professional liability policy before allowing them on a project.
Common Professional Liability Insurance Exclusions
The dynamic nature of professional liability coverage is one of its most important features. However, there are several situations it will not protect your business against, including:
Even though an employee making an illegal u-turn and causing an accident is technically a mistake, professional liability policies do not cover car accidents. It would be best if you had comprehensive commercial auto insurance to handle these events.
When an employee gets hurt, your workers’ compensation policy will step in and cover the related costs. E&O coverage is meant for professional mistakes that cause harm to a client, not your team.
Illegal Activities and Intentional Harm.
This insurance generally does not cover mistakes made by ignoring regulations and/or breaking the law. You will likely have to pay for all related damages on your own.
You may have a great marketing team, but if it uses misleading information about your services to get more clients, you could be liable for false advertising. General liability insurance typically covers these incidents, not your E&O policy.
Personal Injury/Property Damage
Your general liability insurance should save the day if a customer or their property suffered physical harm. Professional liability coverage does not pay for situations where you accidentally drop a box on a customer’s foot or back into a parked vehicle in your lot.
Your company could get sued in numerous ways, but that does not mean you can’t protect against the fallout. Mistakes can happen no matter how well your intentions might be, but you should not watch all of your hard work go down the drain. Professional liability insurance is essential for any business offering services involving specialized skills and training, such as an accountant or doctor. If you are not sure if your business needs this coverage, reach out to seasoned business professionals in your industry for guidance.