The Significance of Professional Liability Insurance

Professional liability insurance is a type of business insurance that protects small business professionals against potential claims of negligence generated by their clients or patients. Depending on the profession, professional liability insurance can take on a number of names, such as professional indemnity insurance, errors and omissions insurance, medical malpractice insurance. For website developers, software developers, real estate brokers, notaries public, management consultants, technology consultants, and other non-medical professional involved in a small business, the insurance is typically termed E&O or errors and omissions insurance. For those in the medical field, it’s called medical malpractice insurance.


The main purpose of professional liability coverage is to go beyond general liability insurance, which typically covers property damage, personal injury and bodily injury. With professional liability insurance, the insured is covered against a failure to perform as well as financial loss due to an error or omission relating to services rendered or products sold. Additional coverage such as intellectual property, breach of warranty and other areas can be added to the main professional liability insurance policy.


For example, suppose a software developer sells its software to a company, but the software ends up performing improperly. If the improperly performing software caused a financial loss to the company who purchased the product, the company may have a potential claim attributed to the failure of the product to perform as expected. If the software developer had an errors and omissions policy however, he’ll be covered. Additionally, this professional liability insurance may also cover defense and legal costs, whether the legal claims have grounds or not.


Professional liability insurance not only offers business protection, but shields personal assets as well. It helps to maintain a good reputation, even through legal allegations of a potential wrongdoing, even if the allegations are false or frivolous. This type of insurance will ensure that adequate funds are readily available for the client that may have suffered damages as a result of the actions of a professional.


If you’re a small business without errors and omissions insurance, its time to take a good, hard look at what professional liability insurance can do for you. As a small business, you might not have the financial backing that a large company has. What would happen if a client decided to sue you for failure to perform or for a mistake? Why even entertain that “what if”?