Insurance
A Deep Dive Into Business Owners Policy Exclusions to Avoid Surprises
January 27, 2025
| September 17, 2024
Author: KimberleeEdited by: Kimberlee and Reviewed: Kimberlee
If you run a service company, chances are that you can benefit from having the protection of a professional liability insurance policy. As a service provider, you never know when a client will say that you were negligent or provided inaccurate advice or services. A professional liability insurance policy would provide you with the legal defense and settlement funds necessary to deal with such occasions.
This article will explain the benefits of professional liability insurance among the many policies you may need for your small business.
Professional liability insurance is often referred to as errors and omissions insurance or malpractice insurance for medical providers. Let’s take a closer look at the coverage scope of various types of business service issues that might arise that are covered by this policy.
Negligence occurs when you haven’t taken the necessary steps to do something properly. Your clients can hold you at fault if you are negligent and haven’t done what a reasonable professional in the same circumstances would do to perform the task properly. A business can be sued for negligence, and a professional liability policy covers this claim.
Everyone makes mistakes on occasion. If you are found to have made a mistake in your service or omitted a vital detail, your client may bring up a claim against you. Professional liability insurance is designed to provide a blanket of protection for these types of claims.
While misrepresentation sounds nefarious in scope, it isn’t always the case. You can make a misrepresentation and still be held liable for it. For example, say a contractor tells a prospective homeowner that a home can be built on a slope for a certain price, but the reality is that the contractor didn’t perform all the necessary inspections to properly bid out the project; the client could have purchased with the wrong information. This is an example of misrepresentation for which you could be liable.
Consumers expect that professional service providers in business will handle their affairs in good faith and work with them fairly. If you don’t continue to operate in good faith or with fair dealings, your client can sue you under the blanket of professional liability. This may include not living up to the contract terms, leading to a loss for the client.
If your business actions lead to personal injury, your client may seek retribution. Personal injury is defined as physical injuries, mental injuries, or property damage caused by a particular party. For example, if a tutor says that they will help the student get into an Ivy League school and they don’t, this may cause mental anguish for the student, whose whole future may depend (in their minds) on a specific education. The student’s parents may sue the tutor for misrepresentation, leading to mental anguish.
Most service businesses can find themselves subject to a professional liability lawsuit. However, getting a policy for some industries is more common than for others. Here’s a list of some common businesses that should have a professional liability policy:
There are certain benefits of having a professional liability insurance policy.
A professional liability insurance policy is designed to provide financial protection in case of a lawsuit. This prevents financial losses from devastating the company.
The errors and omission policy pays for legal representation so that you can defend your business in the event of a lawsuit. While the policy will not likely allow you to choose your own attorney, it will afford you one selected by the insurance company. Rest assured, insurance companies usually have good attorneys trying to protect the interests of the insurance company and, by extension, you. It’s a good protector of financial losses.
Lawsuits may end with a judgment against you or can be settled for a specific amount. This dollar value is paid for by the policy up to the policy limits. This means that if your policy has coverage for up to $1 million, the policy will pay a settlement of $1 million. Anything over the policy limits is your responsibility to pay.
Risk management is a key benefit of having an errors and omission policy (E&O).
Clients like to work with companies that are professional in every aspect of their business. Having an E&O policy can help the reputation of the company be seen as a professional one. It also provides stability for the business as lawsuits won’t financially cripple the company.
When you buy a professional liability insurance policy, your carrier will ask whether you use client contracts or not. It is greatly recommended that you do so since that will outline exactly what you will do for the money paid. A good contract is a critical defense in professional liability lawsuits.
Maintaining a good reputation, especially in today’s online review marketplace, is essential to growing your business and getting new clients. A professional liability policy can help keep a good reputation intact.
True professionals take measures to protect their clients and their company. Having a professional liability policy goes a long way to helping clients view you as a true professional in your field.
Small businesses need client trust and confidence. When you explain that you have an E&O policy, you instantly elevate your business. Getting a professional liability policy is essential for small business owners.
Some industries require professional liability insurance in order to maintain certain licensing requirements.
You’ll want to check with your licensing board and state and county requirements to see if maintaining a professional liability policy is required for you. For example, doctors can’t keep their licenses active without malpractice insurance, which is just another form of professional liability policy.
Failure to maintain a policy can put your business at risk. If you lose your license or get suspended because you don’t have a professional liability policy, you won’t be able to serve clients.
Many insurance carriers offer the ability to customize a policy to meet the specific needs of your business. Talk to your agent about your options.
You can customize your policy coverage to meet your small business needs. A small-town photographer will not need the same amount of coverage as a big-city accountant.
As you can see, a professional liability insurance policy has a lot of benefits for the small business that gets it. Its specific coverage compliments having a general liability insurance policy or a business owners’ policy. Service providers should really discuss options with their agent to see if it is a suitable policy for their company. You can also check out our services page for more information.
The purpose of obtaining professional liability is to protect your business from possible claims of negligence, malpractice, or professional mistakes. These claims can be quite costly and lead to financial stress for a small business.
You can have a claims-made policy or an occurrence policy. Most professional liability policies are claims-made, meaning you are covered for losses that are made and reported during the policy period.
The types of claims covered under a professional liability insurance policy include negligence, errors and omissions, and contractual violations. It also covers professional misrepresentations made by the service provider.
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