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Professional liability insurance, also known as “PRL” or “PL,” is a type of coverage that protects professional service providers from bearing the cost of defending themselves in court after being accused by their clients of providing faulty services. The nature of many jobs makes professionals susceptible to legal action if something goes wrong and their client is hurt as a result.
But unless you work in a field where this happens all the time, many people are not aware of how much danger they put themselves in when agreeing to take on someone as a client. If you provide services for others as part of your job—be it as an employee or contractor—then you need to understand the risks, you face by doing so and the types of insurance available to protect against those risks.
What to Look for When Buying PRL
When buying professional liability, the most important thing to consider is how much coverage you need to adequately protect yourself. There are no hard numbers here, but there are a few factors you should keep in mind.
- Risk – The risk of your client filing a lawsuit against you and winning is a risk that must be considered when assessing your professional liability coverage needs.
- Severity of Claim – The severity of the claim, when multiplied by the probability of it being filed, provides a good idea of what your potential costs of defense will be. While not all claims will go to court, most of them will have to be dealt with in some way.
- Cost of Insurance – The cost of your professional liability coverage is another factor you need to take into account. You want to make sure you’re getting enough coverage for what you’re paying.
Your Liability Coverage Options
While specific coverage options vary depending on the company you get a policy from, the two main types of PRL are “occurrence-based” and “claims-made” coverage.
- Occurrence-based policies protect you against any injury that happens while you are working, regardless of when the client files the claim. This is the recommended coverage.
- Claims-made policies protect only against claims made during the policy period, even if the injury occurred before the coverage went into effect. Each type of policy also has a claim period, which is the time frame your client has to file a claim. It is recommended that you get coverage with a short claim period.
What’s Covered by PRL
Your PRL policy covers any claims that your clients make against you, including legal costs and damages. You will also get coverage if a client sues you but never wins the suit. Typically, your coverage will include legal defense costs.
It may also include the cost of a settlement, but it usually won’t cover your legal obligation to pay damages if you lose the suit. Some policies also include “defense cost coverage” for suits that are dropped or resolved without payment by the client.
Many types of professionals cannot get professional liability coverage. The most common exclusions are for architects, engineers, real estate agents, construction contractors, and lawyers. Other professions have specific requirements that must be met before providers will offer coverage.
For example, PRL providers may not cover veterinarians or medical doctors. If your profession is excluded from coverage or has specific requirements, you may still be able to get PRL through an errors and omissions policy. This is a less common coverage and only protects you against malpractice suits.
Types of Professional Liability Insurance
There are a variety of different types of professional liability insurance, including:
- General Liability – Which covers bodily injury, property damage, and other general liabilities.
- Products Liability – Covers the sale or use of faulty products that result in damage.
- Contract Liability – Covers claims against you under a contract that you did not fulfill as promised.
- Directors and Officers Liability (D&O) – Covers claims against you as a director of a company, a board member, or a senior officer.
- Professional Liability Insurance – The most common type of professional liability insurance.
- Errors and Omissions Insurance (E&O) – A specific form of professional liability that only protects against claims of malpractice.
There is no such thing as too much coverage when it comes to professional liability insurance. The more you have, the better off you’ll be if you ever have to use it. Professional liability insurance protects you from being held legally responsible for the actions of your clients.
For example, if a client trips and falls in your office, breaks a leg and then sues you, the PL insurance will cover the costs and damages involved in defending the suit and any other legal actions that may come up as a result of the injuries. That said, you want to make sure you’re getting the right amount of coverage to adequately protect yourself without paying too much for the policy.