UNIVERSITY OF MISSOURI EXTENSION
 

Professional Liability Insurance

Perhaps the best-known type of professional liability insurance is malpractice insurance carried by medical professionals. Professional liability insurance carried by other professionals, such as accountants and architects, is frequently called errors and omissions insurance. Professional liability insurance is intended to covers lawsuits arising from professional services.

Are you a Professional?

As the name suggests, professional liability insurance is for professionals. A professional is any person who possesses specialized skills or knowledge and offers services for a fee. Professionals frequently are held to a high standard. They are expected to use the latest science and experience to inform their actions and advice. Simply following minimum standards or guidelines on a label may not be sufficient for a professional to avoid liability. A professional may be held to a higher standard. For example, failure to follow a code of conduct or ethics of a professional society can lead to a professional liability claim. Additionally, consultants can be sued if they provide negligent professional services, do not complete contracted work on time, fail to meet all contract obligations, or simply make a mistake. Professional liability insurance is designed to protect the consultant and make whole clients injured by their errors. Additionally, the professional can be liable for mistakes committed by subordinates, subcontractors, and others who work on their behalf.

Certified crop advisers can choose to carry professional liability insurance. The Certified Crop Advisor program of the American Society of Agronomy recommends that CCAs have professional liability insurance either individually or with their employer. Data on what percent of CCAs have professional liability coverage is not available. But CCAs, whether working for an employer or as a consultant, are professionals who earned their certification by meeting certain conditions and use their expertise in business. Their advice can have significant impacts on the financial performance and survival of businesses they advise. Requirements for certification, such as certified pesticide applicator, indicate special knowledge and skill that could indicate a need for professional liability insurance.

Professional Liability Claims

Professional liability claims are different from general liability claims. General liability insurance covers bodily or personal injury and property damage that someone outside the business sustains as a result of an action by the insured person or business. Professional liability insurance typically covers financial damages arising from a professional error. These two types of insurance are not mutually exclusive, and many prudent professionals carry both types of insurance.

Claims of professional negligence are not always straightforward. Results are not as visible as a bodily injury or property damage. Often the fault is determined by legal proceedings that may drag on for years through a trial and at least one appeal. Therefore, the defense costs that come with professional liability are important. Professional liability insurance can help pay for your legal defense, and the cost of any settlement or judgment obtained. Some professional liability insurance policies state a "duty to defend" while others state a "right to defend." The duty to defend clause gives greater risk protection to the insured professional. When examining and negotiating insurance coverage, it is important to inquire how the expense of legal defense is counted in your coverage limits. It is common for legal defense costs to be considered part of the dollar coverage limits in a professional liability insurance policy. So a professional having $1 million in professional liability insurance who incurs legal expenses of $100,000 only has $900,000 remaining to pay any judgements against him.

A peculiarity of professional liability insurance is that coverage is usually based on "claims-made." Claims-made requires that the policy be active when an alleged incident occurs and when the claim is filed. If the professional no longer has the same professional liability insurance policy when someone files a claim for negligence that occurred under a previous policy, neither the current insurance company nor the previous insurance company is likely to cover the claim. This makes switching between insurance carriers problematic. Special insurance is available for this circumstance – but the professional must know about it and use it, rather than just switch insurance carriers as might be done for other types of insurance.

Professional liability insurance, like general liability insurance, does not cover criminal activities. It covers professional negligence, and potential civil claims and suits arising from this negligence. It will not protect the insured against claims based upon intentional conduct, or against the costs or consequences of criminal or regulatory proceedings brought by government agencies.

Umbrella policies pay when other insurance policy limits are met. Specifically, if the dollar coverages for property insurance and general liability insurance are used, the umbrella coverage would begin to cover additional liability. Umbrella policies can be useful in covering claims that exceed the face amount of a general liability insurance policy. However, umbrella policies do not normally pay if professional liability maximum coverages are met, and you shouldn’t depend on an umbrella policy for professional liability needs.

This page is supported by a grant from the North Central Extension Risk Management Education Center.