How does Professional Liability Insurance work? What does it cover?
Professional Liability Insurance triggers in a few different situations:
No matter how careful you are, making mistakes is a fact of life. After all, we’re human. If one of these work mistakes causes a financial loss for one of your clients, it could be problematic for your business.
Professional Liability would kick in, in the event one of your clients attempted to sue you as a result of your mistake.
Sometimes the product/service you describe in your client contracts just doesn’t work the way it was represented to the client. Should that happen, and you get sued, Professional Liability Insurance would apply.
Example: A business consultant recommends you buy a high priced piece of equipment based on high income projections and those projections end up being way off, resulting in a financial loss for the client. That client can actually sue to make up those losses and cite their contract for support.
Your expertise can sometimes be a double-edged sword. It can help you earn clients, but it can also set really high expectations.
Example: Architects have the skill and education to design buildings that both meet client demands and comply with building codes. But let’s say an architect makes an oversight that compromises a building’s safety. The building owner can sue for negligence (the legal standard of being unreasonably careless).
Unfortunately, negligence suits can be pricey. A court may award the client damages, but it can also monetarily punish you to deter future recklessness.