Professional liability insurance is a form of insurance that helps protect professional advice and service providing individuals and companies from the impact of the cost defending against negligence claims made by clients; it also covers damages awarded in a civil lawsuit.
The coverage focuses on alleged failure to perform on the part of, financial loss caused by, and error or omission in the service or product sold by the policyholder. These are potential causes for legal action that would not be covered by a more general liability insurance policy which addresses more direct forms of harm.
Professional liability coverage sometimes also provides for the defense costs, including when legal action turns out to be groundless. Coverage does not include criminal prosecution, nor a wide range of potential liabilities under civil law that are not enumerated in the policy, but which may be subject to other forms of insurance.
Professional liability insurance is required by law in some areas for certain kinds of professional practice (especially medical and legal), and is also sometimes required under contract by other businesses that are the beneficiaries of the advice or service.
Professional liability insurance may take on different forms and names depending on the profession.
- Malpractice Insurance: is insurance directed to the coverage of medical professionals, nurses doctors etc..
- Errors and Omissions (E&O) Insurance: is used by consultants, brokers and lawyers.
- Directors and Offices (D&O) Insurance: provides general coverage to a firm’s directors and senior executives.
Click here to review a chart of comparisons between E&O and D&O Insurance
The primary reason for professional liability coverage is that a typical general liability insurance policy will only respond to bodily injury, property damage, personal injury or advertising injury claim. But various professional services and products can give rise to legal claims without causing any of the specific types of harm covered by such policies. Common claims that professional liability insurance covers are negligence, misrepresentation, violation of good faith and fair dealing, and inaccurate advice. Coverage typically does not include criminal prosecution, or forms of legal liability under civil law.