Clients increasingly require companies they work with to have both commercial general liability and professional liability coverage in place, yet confusion remains about the differences between these types of coverage.
Professional liability, which differs from general liability in its focus, covers damages caused by subpar work performed by professionals.
General Liability
General liability coverage is essential to most businesses as it protects them against financial loss caused by third-parties being injured on your premises, in your car or by products. It covers injuries from slips and falls to property damage as well as the costs of legal representation should someone file suit due to your product, service or misrepresentation.
Liabilities are an important element of a small business’s overall financial picture, not something to fear or ignore. Instead, liabilities should be seen as essential obligations that help your company thrive; you could think of liabilities as your “debts,” which you must repay over time. Liabilities fall into two categories – current and noncurrent liabilities. Current liabilities consist of debts expected to be settled within one year such as sales tax payable collected at point-of-service delivery and payroll taxes payable collected through withholding. Other short-term liabilities include loans/mortgages payable and unearned revenue.
Long-term liabilities refer to any obligations that will be settled over a longer timeframe, such as lease payments, amortization payments and dividends payable. They also encompass deferred credits – assets that have yet to be recorded on your balance sheet as assets that need to be earned and recorded as such on your balance sheet.
Professional Liability
Professional liability, also known as errors and omissions (E&O) or malpractice risk coverage, protects small businesses against lawsuits claiming subpar work performed for clients. While E&O policies are usually required of professionals such as lawyers, doctors and architects, such coverage could also benefit many service-based businesses such as IT firms, financial advisors, tax preparers, bookkeepers or consultants – in fact clients may demand they possess such policies before agreeing to work with your firm.
Claims alleging professional negligence often arise due to unintended errors, oversights or misrepresentations in providing services or advice. Such claims can have devastating repercussions for both businesses and individuals, forcing them to devote significant resources in defense against frivolous legal claims.
Common claims triggering professional liability coverage may include customer disappointment with expected results, architects missing building code requirements or financial advisers making mathematical errors that lead to investment losses. Professional liability differs from general liability in that it covers negligence related to advice and services while general only protects against physical injuries or property damages. It should also be noted that professional liability policies typically operate on a claims-made basis – meaning incidents must happen during your policy term in order to qualify as coverage.
What’s the Difference?
Both coverages help your business protect itself against incidents it may be held responsible for while engaging in its daily operations. Business liability covers bodily injury, property damage and legal costs that result from such incidents; as well as damages associated with slander, libel or copyright infringement.
Professional liability, also known as errors and omissions insurance, covers negligence related to services provided by your business. For instance, if your financial advice leads to client losses that incur fees as a result, professional liability will cover these losses. Furthermore, business professionals can be held liable in cases of malpractice, misjudgment, or misconduct claims against them.
Professional liability policies tend to operate on a claims-made basis, meaning your business must notify its insurer within the policy period for any incident that arises regardless of when it actually took place.
Both business liability and professional liability policies are essential for businesses that deal with customers or clients, yet it’s essential that businesses understand the differences between these policies in order to determine which one is appropriate for their company. Our knowledgeable team is on hand to discuss your options for acquiring these essential policies – they will walk you through coverage options to help select an affordable plan tailored specifically for your unique business needs – we even manage the application process from start to finish – including collecting and reviewing documents relating to it!
Coverage Options
Professional liability (also referred to as errors and omissions insurance) serves as a form of defense for businesses when clients allege negligence or malpractice with regards to advice or services provided. Professionals including architects, designers, software developers and other technical specialists could all benefit from professional liability coverage; lawyers or doctors typically possess this form of coverage under state license agreements as well. Some client contracts require them prior to doing business.
Professional liability policies often include media liability coverage to provide added protection from claims involving written and spoken word (libel/slander) as well as publishing content online (such as social media posts). Finally, business owner policies often combine general and professional liability into one policy to maximize protection.
Be it professional liability coverage or business owners policies, it is wise to consult a licensed commercial insurance agent who can guide your decision about which policy will provide optimal coverage for your industry and profession. Lawyers may need workers’ comp insurance while construction firms might benefit from having general liability and possibly property/business owners policies as well.
