Professional Liability Insurance: The Ins and Outs Explained

Professional liability insurance offers financial protection for claims associated with alleged failure to deliver a service or negligence.

But since insurance can be a very complex world, we’re offering a comprehensive guide to this cover type. Find out more in the subsequent sections.


What Is Professional Liability Insurance?

Professional liability insurance, often known as errors and omissions insurance or E;O, is a kind of business insurance that financially protects you if your client holds you liable for a service you provide.

Your customers can sue if they experience a financial loss due to your work or if your service wasn’t delivered as promised. The consequences can be incredibly expensive. But with professional liability insurance, all the compensatory damages and lawsuit costs are covered.


What Does Professional Liability Insurance Cover?

While all professional liability insurance coverages are different, they typically fund legal costs and damages associated with the following areas:

  • Media and advertising — It covers any media services that resulted in your client becoming sued for libel, slander, or defamation.
  • Professional services — It covers negligent acts, omissions or errors in relation to your services. Additionally, it protects you if you’re faced with claims of failing to deliver your service as promised.
  • Products — It covers you for product failures and physical injuries.


Professional Liability Insurance Coverage in the Real World

It’s all very well telling you which areas professional liability insurance covers. But if you haven’t seen it in action, you won’t really know how much it can save the day in real life.

So, to aid your understanding, consider these scenarios where, without the cover, professionals would have to deal with very serious consequences:

  • An IT professional creates a new network, but it causes outages that stop employees from productively working.
  • A dentist uses an improper method to fix a cavity which ends up causing permanent tooth damage, meaning the patient has to undergo further work.
  • A graphic designer crafts and approves a leaflet littered with spelling mistakes. The act costs their client thousands in reprinting costs.
  • A marketer hits launch with the incorrect promo code, and the business loses thousands of dollars in e-commerce sales.
  • An accountant incorrectly submits your taxes and costs you thousands and an audit.


What Doesn’t Professional Liability Insurance Cover?

No matter how much you might want it to, professional liability insurance won’t fit all mistakes. Usually, this policy won’t provide cover for:

  • Cost guarantees, price estimates, or quotes
  • Violation of securities acts
  • False advertising
  • Claims made outside of the coverage period provided by the policy (for example, before you bought the insurance policy)
  • Property damage (you need commercial property insurance for that)
  • Claims regarding employment such as your legal liability or worker’s compensation
  • Infringement on patents
  • Theft of trade secrets
  • Fraudulent, criminal, or dishonest acts
  • Incorrect estimates of economic returns or profits

Depending on the insurer you choose, you might find extensions to apply to your policy. However, each provider offers various riders, each with its own extra costs.


Who Needs Professional Liability Insurance?

All businesses are at risk of litigation. Therefore, as a general rule, you should take out professional liability insurance if:

  • You offer a service or advice for a fee.
  • You develop or provide devices or products.

From past claims data, it’s clear that the following professions especially benefit from this type of cover:

  • Graphic designers
  • Interior designers
  • Teachers and tutors
  • Financial advisors
  • IT and marketing consultants
  • Business consultants
  • Contractors
  • Sports and fitness instructors, including personal trainers
  • Employment and recruitment professionals


How Much Does Professional Liability Insurance Cost?

The cost of your professional liability insurance policy depends on your business class (among other factors). You can pay anywhere from $150 to $2,000 per year.

Trades professionals usually see higher rates as you have to use expensive tools, and any mistakes can be ultra-expensive. Electricians, for example, might have to pay $1,000 per year for $1 million worth of coverage, whereas plumbers have to pay $1,500.

To give you a better chance at estimating your business class policy cost, consider the average price of these small businesses’ professional liability insurance:

  • Personal support workers — $350 per annum
  • Massage therapist — $350 per annum
  • Management and IT consultants — $750 per annum
  • Life insurance agents — $500 per annum
  • Personal support worker — $350 per annum

Aside from your industry sector, there are three other factors that affect the price of your professional liability coverage premium. These factors are as follows:

  • Years of experience — The more experience you have, the less likely you are to make mistakes. So, it lowers the cost of your premium. The logic behind this is that clients are less likely to claim negligence against a professional with ten years of experience. If you’re an entry-level professional, however, you’re more likely to suffer through negligence claims.
  • Your business’ revenue — If a client claims against your highly profitable business, there’s more at stake than if you were a less-profitable company. A sustainable revenue means clients may ask for more compensation during a lawsuit. Therefore, you should expect to pay more for professional liability insurance.
  • Number of employees — One of the least affecting factors is the number of employees. However, it can play a role. In general, the more people you employ, the more you’ll pay for professional liability insurance.


How Much Professional Liability Cover Do You Need?

The best way to figure out how much professional liability coverage your business needs is to send us an inquiry. We’ll connect you with insurance brokers and agents specializing in your industry to ensure all your needs are met.

Since all companies are different, your insurance needs won’t be the same as anyone else’s — even your competitors! Generally, the minimum coverage for this type of insurance in Canada is $1 million for small businesses. But if you run a large enterprise, you might need more than $10 million.

To get a rough idea of how risky your business is and the level of cover you need, consider the questions below:

  • Do you have employees? If so, how many?
  • Does your business operate at a local, provincial, national, or international level?
  • How many years have you worked in the industry?
  • How old is your business?
  • Does your industry have a long history of professional liability claims?

When it comes to professional liability insurance, the number of employees doesn’t necessarily equal a greater risk. Instead, it’s the nature of your business that dictates the risk, hence why different rates for different categories exist.


How to Get Professional Liability Coverage For Your Business

Getting professional liability coverage or errors and omissions insurance is easy with our help. Our process offers convenience and simplicity. Here’s how it works:

  1. You kickstart the procedure by sending an insurance request via our website. Alternatively, you can give us a call.
  2. Our team gets to work reviewing your requirements.
  3. After the review, we connect you with a licensed insurance agent or broker that has extensive experience working within your industry or profession.
  4. Finally, the agent or broker gets in touch with you to help you obtain the professional liability insurance your company requires.

In just four easy steps, you get the business insurance you need to stay protected in all eventualities.


Is Professional Liability Insurance On Its Own Enough?

It’s highly unlikely that professional liability insurance on its own is enough to establish a comprehensive protection plan. Therefore, it’s wise to consider the following additional policies:


Cyber Liability Insurance

Containment and repair costs associated with data breaches or network hacks can be very expensive. Not to mention the risk of third-party lawsuits is especially high following a cyberattack. Therefore, attaining cyber liability insurance can save your business and keep it afloat during the unthinkable.

The policy covers a multitude of events, such as:

  • Incident response — It covers the cost of accessing a 24/7 cyber incident response hotline and the assistance team that helps you respond to cybercrime.
  • System damage and restoration — It funds the repair and restoration of any software that was damaged during the cyber event.
  • Legal, forensic, and breach management — It covers the costs associated with notification, legal advice, credit monitoring, and crisis management services.


Directors and Officers Insurance

People serving as directors or officers on a company board can be held individually responsible by third parties for a number of things, including:

  • Negligence in their duties
  • Breach of fiduciary responsibilities to shareholders
  • Violation of federal or provincial laws
  • Breach of common law responsibilities

The insurance covers costs related to losses, legal defense, and indemnification of the individual. Your premium depends on a variety of factors like your past claims history, the number of employees, and your quality control procedures.

Any company, regardless of whether it’s for-profit or not, should take out directors and officers insurance if they have executive-level employees.


Business Interruption Insurance

Disasters come without warning and could force you to shut your business temporarily. If you don’t have an adequate insurance policy, a temporary closure could lead to long-term financial hardship. Thankfully, business interruption insurance protects you in this scenario.

Usually, the policy compensates for the net income lost throughout the insured disaster. In addition, they cover over expenses like:

  • Operation overheads like electricity and water bills
  • Mortgage, lease, or rent payments
  • Moving to a location while your usual premise is shut
  • Employee’s wages and payroll
  • Taxes and loan payments due throughout the business interruption period
  • Internet and telephone services


Product Liability Insurance

Product liability insurance protects you against claims alleging third-party bodily injury or property damage caused by a product you sell, manufacture, or distribute. Sometimes, commercial general liability insurance policies include a section about products, but yours may not.

If your business sells, manufactures, or distributes products, including beverages and food, you need product liability insurance. Even those without a brick-and-mortar shop benefit from the policy, as you can still be held liable for your product once it reaches your customer.

The amount of coverage you require depends on the type of product, the volume, and any associated risks. We can help determine your needs.


Legal Expense Insurance

Lawyers are expensive. Even small businesses can end up spending $500 an hour to access legal representation. But not with legal expense insurance.

With this policy, you’re covered in these areas:

  • Contract disagreements and debt recovery — Legal costs to chase clients or suppliers regarding a contract breach or their failure to pay the amount owed to you.
  • Statutory license protection — It covers legal representation after suspensions, cancellation, or alteration of your business license.
  • Property protection — Legal costs associated with suing somebody for property damage.
  • Employment dispute — Defense costs if your current or former employee files a lawsuit against you or your business.
  • And more!


Commercial Property Insurance

Commercial property insurance financially covers you for physical damage or loss to your property and its contents. It doesn’t matter whether you own or rent the space; this policy is essential.

If fires, floods, and theft can create costly damages and losses. Not many small to medium businesses could survive such catastrophic disasters. But with commercial property insurance, restoration and replacement following these events are covered.

Like all insurance policies, the cost of your premium depends on various factors, such as:

  • The type of property your business operates in
  • The type of business
  • The condition and age of the property
  • Where the property is situated
  • Your insurance claims history


Commercial General Liability Insurance

CGL provides financial coverage for third-party property damage and bodily injury claims caused by your company as a result of unexpected incidents or negligence. Generally, your CGL policy covers legal defence fees and compensatory damages, regardless of the outcome.

No business, whether big or small, should be without commercial general liability insurance. You especially need it if:

  • You operate off-site.
  • Your clients visit your home or office space.
  • You or your employees visit your clients’ homes or office spaces.

For a basic CGL as an SME, you should expect to pay around $450 per annum for $2 million worth of coverage.


Commercial Auto Insurance

Commercial auto insurance is a must-have if you use vehicles for work purposes. Like personal car insurance, you can customize the policy in a myriad of ways to make it work for your specific business.

Additional policy coverages include:

  • Collision or upset coverage
  • All perils coverage
  • Specified perils coverage
  • Comprehensive coverage

We can analyze your needs to ensure you’re fully protected.


Why Choose LiabilityCover?

You can randomly venture into the brokerage rode and speak to an agent. However, you’ll likely end up with a handful of quotes, each of them at different prices and providing various levels of coverage. All the complexities of the process will no doubt overwhelm and confuse.

So, you can work with us to make your life easier!

We connect you seamlessly with Registered Insurance Brokers of Ontario (RIBO). All you have to do is submit a request, and we find industry insurance specialists to suit you. Talking about insurance incites fear in many business owners. But with our dedicated team of professionals at LiabilityCover, that terror can be a thing of the past.

By letting us connect you with top-quality brokers and agents, you never have to deal with inexperienced or non-specialist insurers ever again.


Frequently Asked Questions


Is Professional Liability Insurance a Legal Requirement?

Professional liability insurance isn’t a legal requirement for most businesses. However, most regulated professions need to get a policy since their corresponding association dictates it.

With that said, there isn’t a definitive list of professions that need a professional liability policy. But some of the most typical are as follows:

  • Architects
  • Appraisers
  • Mortgage brokers
  • Surveyors
  • Occupational therapists
  • Lawyers
  • Real estate agents

Of course, any business is at risk of litigation. So, if you provide a service, you should think about professional liability insurance, whether your association demands it or not.


What’s The Difference Between General Liability Insurance and Professional Liability Insurance?

Professional liability insurance covers lawsuits regarding misconduct, failure to deliver services as promised, and neglect. Commercial general liability insurance, however, covers bodily injury and property damage to third parties.

We recommend having both policies to create a comprehensive insurance package and make sure you have complete protection.


Does Professional Liability Insurance Cover Errors and Omissions?

Yes, it covers errors and omissions in the advice or service you and your business provide. Sometimes, insurers call “professional liability insurance” “errors and omissions.” Essentially, they’re different names for the same policy.


What’s The Difference Between Professional Liability Insurance and Malpractice Insurance?

On the face of it, both of these insurance policies seem different. But in reality, malpractice insurance is a type of professional liability insurance designed for practitioners in the healthcare industry, such as:

  • Physical therapists
  • Dentists
  • Nurses
  • Doctors

It protects healthcare workers against claims of misconduct or negligence.


How Can You Avoid a Professional Liability Claim?

Once you have a claim against you, it can be hard to settle. Therefore, it’s best to try and prevent them from the get-go. Here are five ways to do that:

  1. Consistently review your contracts — Every job you take should come with a contract clearly outlining your deliverables. Ideally, you should hire a lawyer to review contracts before you sign them to ensure all information is included. The best work contracts give a completion timeline, a transparent complaint process, and limitations of liability. You really don’t want to be sued for professional liability because your contract didn’t outline client expectations accurately.
  2. Communicate well — Mitigate risk by communicating with your client clearly. That may mean requiring feedback on a prototype or checking the project deadlines. Check-in with their thoughts and feelings at different stages. Otherwise, you risk the final product being nothing like what your client imagined.
  3. Limit your workload — We don’t necessarily mean focusing on a single project at a time. However, it does mean you need to be aware of your expertise and how much work your business can realistically handle. Don’t overburden your employees in the name of scaling up your business.
  4. Always double-check — Double-checking is far too often disregarded. But it’s one of the most effective quality control methods available. Small mistakes lead to huge claims. Therefore, it’s always worth the time it takes to double-check something.
  5. Follow best practices — Following industry laws and regulations is vital to ensure you constantly uphold the best work standard possible. Not to mention it goes a long way to preventing professional liability claims. Rules protect you and your customers. Nobody wants a single wrong turn to mean lawsuits.

Managing professional risks is always a good idea when determining how to best prevent liability claims. Some ways to do this are as follows:

  • Fill out intake forms for new clients — This helps you establish an initial relationship and prevents conflicts of interest. Consider the following questions here:
    • What are your client’s views and instructions?
    • Are the goals of the client attainable and reasonable?
    • What is the billing structure?
    • Are there any red flags that arose during the information gathering section of client acquisition?
    • Do you have enough staff to handle the project?
  • Review available information about previous providers who’ve worked with your new client — Consider the following questions within this review:
    • Why is the client changing provider?
    • Does the client have a record of sustaining healthy working relationships with providers over time?
  • Bolster your client evaluation stage — When you’re considering a client to work with, think about including the following in the working agreement or contract:
    • Valid identification
    • The scope of the work
    • Your fee structure
    • The client’s expectations of your responsibilities and vice versa


Why Do You Need Professional Liability and Commercial General Liability Coverage?

No businesses are created equally. Your company is unique in how you operate and what you offer. Because of all those complexities, it’s impossible for a standalone policy to cover all eventualities.

The basic policy (i.e., CGL coverage) protects your business from claims causing third-party injury or loss. However, it won’t protect professional services and advice, physical property, data, and other potential exposures that could exist inside your company.