Professional Liability Insurance
Professional Liability insurance (PLI) covers you against any monetary losses which are the result of a claim of malpractice, errors, and negligence by one of your customers.
This type of insurance is a must-have for any business that is providing services to clients.
In this article, we will discuss the various kinds of professional liability insurance in the USA, the costs, and professions and businesses that need this type of insurance.
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For a start, here is the list of some of the types of professions and businesses that must or should have professional liability insurance.
|Healthcare||Medical doctors, assistants, students, therapists, healthcare professionals, physicians, nurses, mental health practitioners, surgeons, surgical assistants|
|Real estate||Real estate agents|
|Travel||Travel agents, tour operators|
|Construction||Building inspectors, building designers, builders|
|Beauty & wellness||Health and wellness coaches, medical spa workers, health counselor, beauty therapists, makeup artists|
|Consultants||Migration consultants, advertising agents, sport agents, legal consultants, business consultants, business coaches, arbitrators, aviation consultants, medical consultants|
|Scientists||Biomedical scientists, testing analysts|
|Financial advisors||Tax agents, tax consultants, bank employees, accountants, brokers|
|Contractors||freelance contractors, independent contractors, building contractors|
|IT||IT specialists, software developers, website developers|
What is professional liability insurance in the USA?
Professional liability insurance is coverage for your business that protects you from lawsuits and money claims alleging some error or omission by you or an employee.
Let’s say you are an accountant who is keeping the books of multiple clients. By mistake, the wrong information in one of your client’s books. As a result, he makes a bad business decision that costs him a project or a customer. If he holds you responsible, he may sue you for compensation. This is when you need to have professional liability insurance.
This insurance covers the costs of legal defense (including any investigation or disciplinary proceeding) related to errors, omissions, or negligence that are the result of performing your business.
Differences between professional liability insurance and other insurance types
When you are starting your business or deciding how to protect it more, you will notice that there are many different types of insurance. The main idea of insurance, in general, is to protect the business owner and the business itself from monetary losses.
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To get full protection, you need to choose the right types of insurance for your business. Let’s compare professional liability insurance and other insurance types, so you can understand better which types of insurance your business needs.
General Liability insurance vs Professional Liability insurance
What is the main difference between general liability insurance and professional liability insurance in the USA? Do you need to have both of these insurance types? The answer depends mostly on the type of business you are conducting.
These two types of insurance do have some things in common. Both of them are protecting business owners from liabilities. Also, both of the policies can be required by the client with whom you are negotiating contracts.
Sometimes, if you want to sign a contract with a client, he can demand that you have liability insurance for your business. That way, the client is sure that he can get compensation in case of any issues.
The main difference between these insurance policies is the risk they cover. General liability insurance is the widest type of insurance and covers physical risks such as bodily injury or property damage.
On the other hand, professional liability insurance covers more abstract risks such as errors and omissions. This is why, as previously mentioned, professional liability insurance is more necessary for businesses that are providing services.
General liability insurance protects you from physical damages, while professional liability insurance protects you from financial damages.
You can find more about general liability insurance near you.
Errors & Omissions insurance vs Professional liability insurance
When it comes to errors & omissions and professional liability insurance, they are basically the same thing with different names. Depending on the type of business you are conducting, Professional Liability insurance can be called Errors & Omissions (E&O) insurance, Professional Indemnity, or Malpractice insurance.
If, for example, you are working as a consultant, broker, or agent of various types, professional liability insurance in the USA will be called E&O insurance. A financial adviser will probably be looking for a Professional Indemnity policy. Same thing, different name.
The most common professions that need E&O insurance are brokers, real estate workers, notaries, engineers, IT service providers (there is special E&O insurance for software developers), architects, business administrators, etc.
Typically, Malpractice insurance is the term applied to lawyers and healthcare providers, but basically, all three of these insurances have the same coverage and same cost. The only difference is the name of the insurance itself, which will depend on the profession.
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Other names for professional liability insurance in the USA are professional indemnity insurance and malpractice insurance.
Malpractice insurance – medical professional liability insurance
Malpractice insurance is another name for professional liability insurance used in the medical profession. This insurance covers so-called “medical malpractice”.
Medical professionals covered with this type of insurance are physicians, dentists, psychologists, pharmacists, optometrists, nurses, physical therapists, etc.
Medical malpractice is sometimes described as a professional negligence by a healthcare provider. It may be alleged that the treatment a healthcare provider offered was below the standard expected by the medical community. The result of this may be the injury or death of a patient.
In 29 states, malpractice insurance is required by the law, while in other states it is highly recommended for medical professionals to have this type of insurance.
For example, Colorado, Connecticut, Kansas, Massachusetts, New Jersey, Rhode Island, and Wisconsin require medical insurance, while Nevada, Hawaii, and Texas have no requirements.
This insurance protects medical workers from expensive lawsuits.
There are approximately 17,000 cases of medical malpractice in the USA every year. Therefore, even if the state doesn’t require any insurance, it is highly recommended to have one.
Some of the most common claims in cases of medical malpractice:
- Failure to diagnose
- Negligent treatment
- Failure to warn.
Medical malpractice falls under the Medical Malpractice Law in the United States.
“Medical malpractice law has traditionally been under the authority of the individual states and not the federal government, in contrast to many other countries.
To win monetary compensation for injury related to medical negligence, a patient needs to prove that substandard medical care resulted in an injury.” Source: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC2628513/
Why do some health care professionals still have no malpractice insurance?
According to stats, there are still a lot of medical professionals without this insurance. The reason in most cases is the cost.
The average cost of medical professional liability insurance in the USA is $7,500 per year. Surgeons can pay even $30,000 – $50,000 per year for their premium because their medical field includes higher risks. Others usually pay $4,000 – $12,000 per year, depending on the field of expertise.
This is why some professionals prefer to “go bare” and risk. According to a survey by the American Medical Association, more than 65% of doctors above the age of 55 say that they have been sued at least once.
Therefore, it is strongly recommended to protect yourself and get malpractice insurance not related to state requirements.
Here you can find the medical malpractice form that you need to fill.
Purchasing medical malpractice insurance
Depending on the location and type of medical practice, the insurance can have several forms:
– Individual or group policy from the insurance company; purchased traditionally in the company itself, or online
– Individual or group policy obtained through the organization of medical professionals RRG organized to provide liability insurance
– Part of a policy provided by employer, e.g. hospital
There are two basic types of malpractice insurance and they depend on the type of the policy. One is claims-made malpractice insurance that requires the policy to be active at the time the claim was made.
In the earlier times, more popular was occurrence-made policy. This means that the policy covers losses that occur while the policy is active, not depending on the date when the claim was made.
Lawyers’ professional liability insurance (LPL)
Besides medical workers, lawyers are in another line of professions that requires professional liability insurance.
This type of insurance protects lawyers from legal malpractice. Legal malpractice can be very dangerous because, besides money claims, it brings a bad reputation to the law office.
According to the LPL policy, the lawyer needs to report immediately any alleged error, omission, or anything that can lead to a money claim.
There are two types of LPL – “Full prior acts”, if the lawyer was covered constantly from the first day, or “Policy periods”, if a lawyer has a policy per year, without constant renewal.
Here you can check the requirements of LPL state-by-state.
The price of the Lawyers’ professional liability insurance in the USA will depend on a few factors such as risk, policy coverage limits, size of the business, and exclusions from the coverage.
Of course, the price also depends on the state and the insurance company you choose.
What is (not) covered by professional liability insurance in the USA?
A professional liability insurance policy usually covers claims during the policy period. This means that as long as your policy is valid you will be protected from errors, omissions, and negligence listed in your policy.
Some policies might have retroactive dates and cover what happened before the policy started, but that is usually not the case. The retroactive cover is usually offered by the insurance company as an additional service with your professional liability insurance policy.
Coverage of professional liability insurance in the USA does not include criminal prosecution, nor all the forms of liability under civil law. Professional liability insurance coverage depends on the things specified within the policy itself.
Usually, the policy does not cover libel, slander, breach of contract, breach of warranty, intellectual property, etc. Therefore, you should compare offers from various companies and decide which one gives you the best coverage for your business.
When it comes to malpractice insurance, besides criminal acts, it does not cover inappropriate alteration of medical records.
In the case of LPL policy, coverage for the return of professional fees is almost always excluded.
What happens after the policy is terminated or expired is usually called a coverage gap. This gap is most common in E&O insurance. If you do not renew the policy before or on the day it expires, you will have a gap until you renew it.
What does this mean in practice?
Simply speaking, it will be the same as if you never had professional liability insurance. The new starting date will be the date you renew your policy.
For example, you had a policy from 1st February 2020 to 31st January 2021. If you failed to renew immediately, but only renewed on 7th February 2021, then you have no preceding cover. If someone submits a claim on 1st February 2021 for something that occurred in June 2020 when you submit a claim against your insurance policy, most likely, your claim will be denied.
Why? Because you had a gap. The insurance company considers that your insurance started on February 7, so you lost all the previous rights you had before this date.
Some policies go above standard coverage. As mentioned, standard PLI policy does not cover responsibility for many liabilities under civil law. You can add more coverage to your PLI policy and cover those liabilities as well.
Therefore, when purchasing professional liability insurance, be aware of the dates and check what is listed as a covered case in your insurance policy.
Professional liability insurance certificate
A certificate of professional liability insurance is proof of insurance that contains the most important information about your liability insurance policy.
The information listed within the professional liability insurance certificate:
- Policy limits
- The expiration date of your coverage
- Policy number
- Name of your insurance company
You will usually need this certificate in two cases: to apply for a professional license and to sign a contract with a client.
In some professions, when applying for a professional license, many states require you to have professional liability insurance.
When signing a contract with some clients, they might require you to have professional liability insurance. This insurance makes them more confident to cooperate with you because they have proof that in case of a lawsuit or money claim, they will be covered.
You will get the certificate from your insurance company, usually on the same day you purchase the policy.
Costs of professional liability insurance in the USA
Costs of professional liability insurance in the USA vary depending on the type of the business, risk, size of the business, the coverage you opt for, state, and the insurance company.
The average price for small business owners for professional liability policy is $60 per month or $710 per year.
When it comes to some specific professions, such as healthcare providers, as previously discussed, the premium can go from $4,000 to an unbelievable $50,000 per year.
The average costs of insurance policy for lawyers are usually $1,200 to $2,500 per year, with minimal coverage. For some more risky categories, the policy can cost even $10,000 per year.
For IT professionals, the average price is $60 per month or $720 per year. This profession has at its disposal technical Errors & Omissions insurance which bundles E&O insurance with cyber liability insurance. The cost of this type of E&O insurance goes from $730 – $1,400 per year.
A policy for professional liability insurance in the USA can be purchased in several ways.
First, the traditional way is to go directly to the insurance company and purchase the policy. This way is a bit more time-consuming because you need to visit several company’s branches to find the best offer for your business.
The second way is to compare the offers online and choose the package that suits you the best. This way is faster and usually saves money, because insurance companies can add additional services to your coverage or give you a discount for online purchases.
Another way is to get insurance through some organization or directly from the employer. This depends if you are employed or working as a freelancer, and are you a member of any organization related to your profession.
More about insurance for freelancers you can find here.
Conclusion about professional liability insurance
As you’ve seen throughout the text, for certain lines of work, professional liability insurance in the USA is required by the law. Others have at their disposal the freedom to make a choice if they want this type of insurance or not.
Whether the insurance is mandatory or not, all business owners should protect themselves and their businesses in good time.
Money claims that are the result of malpractice, errors, or negligence, can be very expensive. They can lead to business bankruptcy and closing. To prevent this, business owners should research which type of policy would help them protect their business.
You should see this type of insurance as a business investment. When providing services and working with people, errors and omissions are inevitable.
In such cases, should there be a need for you to go through the expensive lawsuits without harming your business, the insurance policy will have you covered. Therefore, it’s an investment in the future safety of your business.
Make sure to compare offers from different insurance companies and verify if the insurance is required by the law in your state.