Why Do I Need Professional Liability Insurance?

Many business owners wonder why they need to purchase a separate professional liability insurance policy when they already carry commercial general liability insurance. While both of these policies protect a business from liability claims, the types of claims they provide coverage for are very different.

Professional Liability Insurance

Professional liability insurance, also known as errors and omissions insurance, is designed to protect a business when a client or customer alleges the business’ service caused a financial loss. This could be from a business’:

      • Rendering services
      • Failing to render services
      • Giving incomplete or inaccurate advice
      • Making mistakes

Often, claims paid under errors and omissions insurance are financial in nature—actual incurred financial loss, loss of reputation or indirect financial consequences. These types of losses do not meet the definition of a loss covered by a commercial general liability policy.

For example, a company discovers their CPA did not use generally accepted accounting principles and had not provided the most current and up-to-date advice available and the company incurred a financial loss as a result. The company seeks reimbursement from their CPA.

This is the type of claim a professional liability policy provides coverage for.

Commercial General Liability Insurance

Commercial general liability insurance provides protection for:

      • Bodily injury or property damage that the business is legally liable for arising from the insured’s business operations
      • Personal injury (such as libel, slander or false arrest) and advertising injury
      • Bodily injury or property damage arising out of the insured’s product or service

For example, the battery in the device the insured manufactures overheats and causes a fire. A person is burned when this happens and their car sustained damage from the fire. This claim would be paid under the products and completed operations section of the insured’s commercial general liability policy.

However, there would be no coverage under this policy for the errors made by the accountant.

Professional Liability—Do I Need It?

Professional liability insurance is designed to protect your business from claims that are a direct result of the services you provide.

Even the most skilled professional can make a mistake at some point. If someone makes a claim against you—no matter how frivolous it may be—your professional liability policy can defend the claim covered by the policy. Having commercial general liability insurance alone will not protect you for claims of financial loss resulting from the services you render or fail to render.

Get the coverage you need. Call Ed Weeren Insurance Agency at (512) 454-5266 for more information on Austin business insurance.