Businesses that provide services for a fee should have professional liability insurance, which is widely available.
Updated Jan 3, 2023 · 3 min read Written by Rosalie Murphy Lead Writer Rosalie Murphy
Lead Writer | Small business, business insurance, business banking
Rosalie Murphy is a small-business writer at NerdWallet. Since 2021, she has covered business insurance, banking, credit cards and e-commerce software, and her reporting has been featured by The Associated Press, MarketWatch, Entrepreneur and many other publications. Rosalie studied journalism at the University of Southern California and holds a graduate certificate in Quantitative Business Management from Kent State University, where she's now pursuing an MBA. She is based in Chicago.
Assigning Editor Ryan Lane
Assigning Editor | Small business, student loans
Ryan Lane is an editor on NerdWallet’s small-business team. He joined NerdWallet in 2019 as a student loans writer, serving as an authority on that topic after spending more than a decade at student loan guarantor American Student Assistance. In that role, Ryan co-authored the Student Loan Ranger blog in partnership with U.S. News & World Report, as well as wrote and edited content about education financing and financial literacy for multiple online properties, e-courses and more. Ryan also previously oversaw the production of life science journals as a managing editor for publisher Cell Press. Ryan is located in Rochester, New York.
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Nerdy takeawaysProfessional liability insurance is business insurance that protects you if a client files a lawsuit over an alleged mistake or bad piece of advice. It’s also known as errors and omissions insurance.
If you provide services to clients for a fee, you should have professional liability insurance. Here’s what this insurance covers and where to shop for coverage.
Professional liability insurance is also called errors and omissions insurance . It can protect businesses against the following kinds of claims, including covering legal and settlement costs:
Professional negligence or failure to meet a standard of care. Say an architecture firm designs a branch for a local bank. A year later, the bank is sued by a customer because the branch’s bathrooms aren’t compliant with the Americans with Disabilities Act, or ADA. The bank could sue the architecture firm for failing to adhere to professional standards. Read more about architect insurance .
Failure to deliver a promised service on time. Say a manufacturing plant hires an IT consultant to handle a cybersecurity upgrade. The consultant promises it’ll be finished by the end of the year, but they can’t stick to that timeline. In January — after the project was supposed to be completed, according to the contract — the plant gets hacked. The plant could sue the consultant to recoup the costs of recovering from the security breach. Read more about professional liability insurance for consultants .
Breach of contract. If an insurance agency’s contract says it will help clients settle claims but, when the time comes, it doesn’t have enough staff to provide that service, clients could claim that the agency violated that contract. Read more about E&O insurance for insurance agents .
Errors. Medical malpractice insurance is a type of professional liability insurance that protects against claims of professional errors. For instance, if a nurse administers the wrong dosage of a medication to a patient, they could be sued by that patient or their family. Read more about how much medical malpractice insurance costs.
General professional misconduct. If a college professor routinely grades one student harder than their peers and that student can’t graduate on time, that student or their parents might file a claim against the educator.
Professional liability insurance protects your business regardless of whether legal claims are found to have merit. Your policy can pay out in case of frivolous lawsuits as well as substantiated ones.
Unlike some other types of liability insurance , professional liability policies generally protect against claims of financial losses, not bodily injury or property damage. Medical malpractice insurance is an exception to that rule, though, as are policies for architects and engineers.
