Professional Liability Insurance Overview Guide

In today’s business world, professionals such as consultants, doctors, architects and lawyers face constant risks related to their services. Even a minor oversight can lead to financial losses or lawsuits. This is where liability insurance plays a vital role. It offers financial protection against claims of negligence, misrepresentation or errors made while providing professional services.

What is Professional Liability Insurance?

Professional liability insurance, also referred to as errors and omissions insurance, is designed to safeguard professionals against claims arising from mistakes, missed deadlines or advice that leads to a client’s financial loss.

For example, if a client sues an architect for an alleged design error that caused project delays, the insurance can help cover the cost of legal defence and any settlement amount. This policy provides peace of mind, allowing professionals to focus on their work without fearing unexpected claims.

Who can benefit from professional liability insurance?

Any professional who provides specialised services or expert advice can benefit from professional liability insurance. They include:

• Doctors and healthcare providers: Protect against claims of negligence or incorrect treatment.
• Lawyers and legal advisors: Cover against client allegations of poor legal representation.
• Accountants and auditors: Shield from claims due to financial miscalculations or reporting errors.
• IT consultants and software developers: Guard against errors in system design or data loss.
• Architects and engineers: Cover professional errors in design, planning or supervision.

In essence, if your work involves providing expertise or advice, professional liability insurance can act as a safety net against potential legal and financial risks.

Professional Liability Insurance coverage and exclusions

Professional liability insurance typically includes coverage for:

• Negligence: Protection against financial losses caused by unintentional errors or omissions in professional services.
• Defence costs: Coverage for legal expenses, attorney fees and court costs incurred during lawsuits.
• Libel and slander: Protection against unintentional defamation or damage to a client’s reputation.
• Breach of duty: Coverage if a client claims you failed to perform duties as agreed in your contract.

Note: This is an indicative list. Please read the policy wordings for the complete list of inclusions and exclusions.

Exclusions:

Certain scenarios are not covered under professional liability insurance, such as:

• Intentional wrongdoing or fraud
• Criminal acts or penalties
• Bodily injury or property damage (covered under general liability insurance)
• Contractual liabilities beyond agreed professional services

Note: This is an indicative list. Please read the policy wordings for the complete list of inclusions and exclusions.

Four things to consider for an all-inclusive Professional Liability Insurance

Before buying a professional liability policy, it’s important to assess the following:

1. Coverage limit: Understand the maximum amount the insurer will pay for a single claim and the total during the policy period. Choose a limit suitable for your industry and business size.
2. Retroactive date: Ensure your policy covers past work or services provided before the policy’s start date. This is crucial for ongoing professional engagements.
3. Claims-made vs. occurrence basis: Most professional liability policies operate on a ‘claims-made’ basis, meaning coverage applies only if the claim is reported while the policy is active. Always confirm this clause in your policy document.
4. Policy extensions: Check whether optional covers, such as dishonesty by employees, loss of documents or data breach protection, are available to enhance your policy scope.

How to choose the right Professional Liability Insurance policy?

Selecting the right cover depends on your profession, risk exposure and client requirements. Here are a few points to help you evaluate:

• Assess your risk level: Identify the nature of professional services you provide and potential claim scenarios.
• Compare multiple insurers: Evaluate coverage limits, exclusions and claim processes.
• Review the policy wording: Understand the terms and conditions to ensure transparency.
• Consult a licensed insurance advisor: Seek guidance to determine the coverage that aligns best with your professional risks.

The goal is to find a balanced policy that adequately protects your professional interests without overpaying for unnecessary add-ons.

How to claim Professional Liability Insurance?

Filing a claim under a professional liability policy involves a few essential steps, such as:

• Notify the insurer immediately: As soon as you become aware of a potential or actual claim, inform your insurer.
• Submit necessary documents: Provide all supporting materials such as contracts, emails and client communications related to the claim.
• Cooperate during the investigation: Offer support when the insurer reviews your documents or requests additional clarification before proceeding.
• Settlement or defence: Based on the findings, the insurer may either settle the claim or provide legal defence on your behalf.

Timely reporting is key to ensuring smooth claim processing and avoiding disputes later.

Conclusion

Professional liability insurance acts as a crucial safeguard for individuals and firms offering specialised services. It ensures financial stability when faced with unexpected claims or legal disputes. Whether you are a consultant, engineer or healthcare professional, this coverage provides essential protection against risks linked to professional errors.

Choosing a suitable policy depends on your profession and the risks. Understanding the coverage and exclusions before purchase ensures you stay prepared for any eventualities.

FAQs

• What is the difference between professional liability insurance and general liability insurance?

Professional liability insurance covers financial losses due to professional errors or omissions, while general liability insurance typically covers bodily injury or property damage caused to third parties.

• Is professional liability insurance mandatory in India?

While not mandatory for all professions, certain sectors like healthcare and law may require it under specific regulations or professional councils.

• Does professional liability insurance cover breach of contract?

Coverage for breach of contract may vary between insurers. It’s best to review your policy terms or consult your insurer to confirm.

• Can freelancers buy professional liability insurance?

Freelancers who offer professional services or consultancy can purchase a policy to safeguard against client claims.

• How is the premium for professional liability insurance calculated?

Premiums may depend on several factors such as profession, years of experience, revenue and coverage limit.

Disclaimer: The information provided in this blog is for educational and informational purposes only. It is advised to verify the currency and relevance of the data and information before taking any major steps. Please read the sales brochure / policy wordings carefully for detailed information about on risk factors, terms, conditions and exclusions. ICICI Lombard is not liable for any inaccuracies or consequences resulting from the use of this outdated information.