Professional Liability Insurance: A Safety Net for Small Businesses

April 22, 2013

Whether your clients require you to have Professional Liability Insurance or not, this coverage can come in handy for projects that run into problems.

Starting a small business is inherently risky.  Having professional liability insurance reduces the risks you face in delivering services, letting you focus on business development and delighting customers.

What is professional liability insurance?

Professional liability insurance goes by many monikers: errors and omissions insurance, E&O insurance, professional indemnity insurance, PII.  It’s coverage that protects you in cases of faulty service (errors) or failure to provide a service (omission), paying defense and damages costs (up to your policy’s limits), and protects you even if you don’t think you made a mistake.

Who needs professional liability insurance?

Designers, photographers, writers, accountants, and consultants are just a few of the businesses that benefit from E&O coverage.  According to the Small Business Administration, business owners who provide services should consider having professional liability insurance to protect against malpractice, errors, and negligence issues that may arise.

Additionally, professional liability insurance is required by client contracts in many cases and by law in some areas – especially medical and legal.

But what if your clients don’t require you to have professional liability insurance?  There are many service providers who’ve been operating for years without E&O just fine, right?

Why you need Professional Liability Insurance

It’s likely that 99% of your projects will go smoothly, but some won’t.  That’s where professional liability insurance for businesses comes in.

While there are a few things professional liability coverage doesn’t cover – claims alleging fraudulent acts, employment matters, false advertising, infringements on patents and trade secrets, disclosures of personally identifiable information – the many ways in which it does cover you are priceless:

  • Alleged or actual negligence

PLI protects your business against errors and omissions (actual or alleged) that happen during the course of providing services.  This includes giving incorrect advice, an omission, or simply failing to deliver.

  • Defense costs

PLI defends you from the moment a covered claim is reported, and often the insurer will appoint an attorney to the case, even if the claim is groundless.

  • Personal injury

PLI protects you against both libel and slander if either is committed as a result of your professional services.

  • Copyright infringement

Every business is different in how copyright applies to them, but each benefits from having coverage for damages and claim expenses relating to this risk.

  • Temporary staff and subcontractors

Professional liability insurance coverage protects you from claims against you, and also those arising from services done by your employees, temporary staff, and independent contractors.

It’s simple: Prepare for the worst, just in case.  The costs of defending against, or losing, a case could close your business, so why take the risk?  Since there’s no one-size-fits-all policy, discuss your situation with an agent or broker who’s familiar with your industry or contact Hiscox for help.

This information is provided to assist you in understanding the coverage we offer and does not modify the terms and conditions of any insurance policy, nor does it imply that any claim is covered. Coverages are subject to underwriting and may not be available in all states.