Let’s face it: nobody’s perfect. Mistakes can happen to even the most experienced professionals, and that’s why professional liability insurance exists. Whether you actually made a mistake or not, you need protection to cover the costs of defending yourself legally (among other expenses) in case an incident occurs.
So what is professional liability insurance?
It’s protection for your business in case a client pursues legal action against you on the basis of your mistake or omission causing them economic or financial losses. It goes by a few other names, including:
- Professional Indemnity Insurance
- Errors and Omissions insurance
Who might make a claim against you?
Clients can seek compensation if they lose a significant amount of resources or income because of something you did incorrectly or something you forgot to do. Some of the most popular causes of these cases are:
- Professional negligence
- Copyright infringement
- Defamation and libel
- Financial loss
- Loss of documents or data
How would professional liability insurance help my business?
The number-one goal of professional liability insurance is to keep you in business should you be sued by a client. Imagine having to pay out-of-pocket for thousands (even tens of thousands) of dollars in lost revenue. Most small businesses and consultants couldn’t handle that kind of hit to their cash flow or savings.
Here are some fairly common examples of professional liability insurance saving the day:
- A plumber installs a new toilet and it leaks, causing water damage to the floor and ceiling below.
- A graphic designer creates and approves a brochure with spelling mistakes, costing the company thousands to reprint.
- A financial advisor provides incorrect investing advice and the client loses thousands in the stock market.
- A photographer accidentally damages a client’s wedding photos that are irreplaceable.
- An accountant makes an error on your taxes and costs you thousands of dollars and an audit.
- A web designer is paid to build a website but launches it late, missing the holiday season and a huge revenue opportunity (if the deadline was agreed upon).
- A dentist repairs a cavity using an improper method, causing permanent damage to the tooth, requiring further work.
- An interior decorator stumbles into a lamp, which falls into a window, breaking it. They now have to replace both.
- A marketer launches the wrong promotional code and loses the company thousands in ecommerce sales.
- An IT professional establishes a new network but it’s causing outages that are preventing employees from working productively.
- A travel agent books the wrong dates for a couple’s honeymoon and they miss it with non-refundable hotels, airfare, and tours.
Many of those accidents are honest ones, but they can have a disproportionate impact on a client’s financial situation.
What does professional liability insurance cover?
If you give the wrong advice, provide an incorrect piece of information, forget to perform a task, or make a mistake in providing a service, then you can be sued by a third party. If you have professional liability insurance, you’ll be covered for:
- Legal expenses and defence costs if the claim is taken to court.
- Compensation if damages are required to be paid to injured parties.
- Run off insurance if a claim occurs after a business ceases to be in operation.
What isn’t covered?
Professional liability insurance doesn’t cover all mistakes. Here’s what it doesn’t cover:
- Claims made outside of the policy coverage period (i.e. claims made before the insurance policy was active).
- Property damage (that falls under commercial property insurance)
- Intentional acts (i.e. fraud)
- False advertising
- Claims related to employment, like an employer’s legal liability or worker’s compensation (that’s different coverage that can be purchased).
- Infringement on patents
- Theft of trade secrets
Sometimes it’s possible to add extensions to your professional liability coverage policy, but providers will vary in what they offer and how much it’s going to cost you.
How much does professional liability insurance cost?
It’ll come as no surprise that professional liability costs vary by business class, but there are some easy ballpark figures you can keep in mind.
Here are some real-world examples of professional liability insurance prices for a handful of small businesses with $1,000,000 in coverage:
- Personal trainer: $250 per year
- Massage therapist: $350 per year
- Personal support worker: $350 per year
- Life insurance agents: $500 per year
- Management & IT consultants: $750
Trades professionals tend to see higher rates because their work involves expensive tools, and the consequences of mistakes on infrastructure can be costly to repair. Electricians could expect $1,000 per year, while plumbers might pay $1,500 per year to get $1,000,000 in liability coverage (around 0.1% of the policy’s coverage).
How much professional liability coverage do I need?
Like most insurance policies, it’s difficult to give an exact number because of the many factors that go into calculating your premiums—they’re different for everyone. The typical minimum in Canada for professional liability insurance is $1 million for small or individual businesses, but larger companies could require upward of $10 million.
Ask yourself these questions to get a sense of how much risk your business has and what level of coverage you’ll need:
- Is your business local, provincial, national, or international?
- How many years have you been in business?
- How many years of experience do you have in the industry?
- Do you have employees?
- Does your industry have a history of professional liability claims?
Contrary to popular belief, having a bigger business or more clients doesn’t inherently expose you to greater risk. It’s the nature of the business that dictates risk, which is why there are different rates for different business classes.
How do I get professional liability insurance coverage?
One of our aha insurance team members can get you set up with professional liability insurance coverage right away. Typically, we’ll need you to provide a few things:
- Copies of your client contracts
- Documentation procedures
- Any information about previous professional liability insurance coverage
- Quality control processes
- Employee training initiatives
Keep in mind that some of your clients may require you to have professional liability insurance to work with them and your professional association may require you to have it, if your industry has one.
FAQ
What’s the difference between professional liability insurance and malpractice insurance?
Malpractice insurance is a form of professional liability geared specifically for the healthcare industry.
Malpractice insurance is a type of professional liability insurance meant specifically for healthcare professionals like doctors, dentists, nurses, or physical therapists. It protects them against claims of negligence or misconduct, like when someone is hurt or damaged because of an error made by the healthcare professional.
Which professions are legally obligated to purchase Professional Liability Insurance?
Typically all regulated professions must secure professional liability insurance because their professional association dictates it. There is no absolute list of professions that demand it, but some of the most common are:
- Lawyers
- Accountants
- Architects
- Real Estate Agents
- Appraisers
- Surveyors
- Mortgage Brokers
- Occupational Therapists
That being said, any business can be at risk of litigation. Considering past claims, these professions also would benefit from professional liability coverage:
- Business consultants
- IT consultants
- Marketing consultants
- Financial advisers
- Teachers and tutors
- Recruitment and employment professionals
- Graphic and interior designers
- Sports and fitness instructors
- Contractors
Do I need professional liability insurance if my company is a corporation?
Having your business incorporated is not the same as having business insurance. One doesn’t replace the other. Professional liability insurance will protect your business and personal assets on the line for things like these due to error or omission:
- Lawyer fees
- Damages
- Lost income
If you have a physical location for your business, you should also look into general liability insurance. It covers everything from customer injuries on commercial property to litigation against your business.
