One of the most common doubts when setting up a company of any size is the need for liability insurance. However, sometimes people forget the importance of professional liability insurance, which can be just as important or even more so.
We must consider that professional liability insurance will cover aspects directly related to the company’s or the professional’s activity. These coverages give us a clue of the importance of this type of insurance.
What is professional liability insurance?
Actually, the basic coverage of professional liability insurance is to cover the damages that may cause to third parties in the exercise of the professional activity. These damages may be caused by employees or by individual professionals.
A common misconception is that professional liability insurance is only needed in large companies. On the contrary, it is as important, if not more so, in a large company as in a small or one-person business.
There are three broad areas of coverage within professional liability insurance:
- Damages due to negligence: this is probably the most well-known type of coverage in Professional Liability insurance. It is going to cover damage that may be caused by malpractice in doing a professional activity.
- Damage due to lack of good faith and fair dealing: in this case, it generally refers to damage caused by the unilateral breach of an agreement or contract (although it can extend to other situations).
- Damages caused by misleading information: where very interesting coverages are grouped aimed at being able to claim damages caused by deficient or false prior information. We have seen this relatively often in recent years within financial services.
Considering the three previous points, professional insurance can be necessary for any business activity.
Do you need professional liability insurance?
There are different positions on who needs professional liability insurance. In some cases, it is claimed that this type of insurance is intended for sensitive professional activities such as health, construction, financial services, law, etc.
However, there is a growing awareness that damage caused by professional activity can come from almost any sector—for example, those related to image, design, decoration, car repairs, etc.
Let us not forget that we are talking about insurance that goes beyond the concept of the “guarantee” that can be granted to a product or service.
Any professional activity will have some exposure to third-party risk. In general, as long as it can demonstrate that damages related to health, property, or finances have been generated, it will be possible to file a claim. Therefore, this type of insurance for professionals should be necessary.
How are these insurances sold?
When taking out liability insurance for a company, it is quite likely that professional liability insurance will be offered as an added value.
Although they can contract it independently, the reality is that it is even more interesting to look for combined options. Nowadays, such offers are quite common. Practically all companies specializing in business insurance will offer packages combining different types of coverage, including professional damages.
On the other hand, we must not forget that the professional damage caused to a third party may have an immediate claim or not. If the complaint is made immediately, the policy will protect it, but when the claims are deferred for a later period, it may not be covered if the policy has expired.
Therefore, evaluating those insurances that offer deferred coverage or extended claim periods on the professional tasks or services insured is very interesting. This type of coverage may be somewhat more expensive. Still, it offers the peace of mind of not encountering serious problems in the future if possible claims for work previously performed.
In short, if you are considering creating any company or developing a specialized professional activity, it is necessary to thoroughly evaluate the possibility of incorporating professional liability insurance.