Professional liability insurance, also
called Professional Indemnity Insurance, protects professional
practitioners such as architects, lawyers, physicians, and
accountants against potential negligence claims made by their
patients/clients. Professional liability insurance may take on
different names depending on the profession.
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For
example, professional liability insurance in reference to the medical
profession may be called Medical Malpractice.
Notaries
public may take out errors and omissions insurance (E&O). Other
potential E&O policyholders include, for example, insurance
agents, insurance companies, real estate brokers, mortgage companies,
mortgage brokers, board members, home inspectors, appraisers, and
website developers.
There
are also specific E&O policies for technology companies, such as
software developers, technology consultants and other creators of
technology.
This
coverage focuses on the failure to perform, financial loss and error
or omission of the products or services sold. Additional coverage for
breach of warranty, intellectual property, personal injury, security
and cost of contract can be added.
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The
primary reason for professional liability coverage is that a typical
general liability insurance policy will only respond to a bodily
injury, property damage, personal injury or advertising injury claim.
The above mentioned professional services and products can cause
claims without causing a bodily injury, property damage, personal
injury or advertising injury. Common reasons alleged in making claims
on these policies are negligence, misrepresentation, violation of
good faith and fair dealing, and inaccurate advice. For example, if a
software product fails to perform properly, it may not cause physical
damages, personal or advertising injuries, therefore the general
liability policy would not be triggered. It may, however, directly
cause financial losses which could potentially be attributed to the
software developer's misrepresentation of the product capabilities.
Professional
liability insurance policies are generally set up based on a
claims-made basis, meaning that the policy only covers incidents that
occurred during the time frame in which the coverage was active. It
is important to continue your coverage, because canceling the policy,
will in effect, make it as if you never had coverage.
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