When Should I Get Professional Liability Insurance? - Zupnick Associates

(By: Brittany Brooks)

You want to get professional liability insurance before any incidents occur, if you’re providing a professional service. In a word? Now. Even if you’re a small business owner, having coverage will be worth it, if needed.

There are different types of professional liability insurance: 

  1. Errors & Omissions Insurance
  2. Medical Malpractice Insurance
  3. Directors & Officers Liability Insurance

Your industry and type of professional service dictates which one applies to you.

Errors & Omissions Insurance

Errors & Omissions Insurance (E&O Insurance) protects businesses from claims issued by their clients of negligence, errors, or mistakes made. It’s used by companies and professionals who provide advice, or a service:

  • Lawyers
  • Accountants
  • Financial advisors
  • Insurance agents
  • Consultants
  • Architects
  • Engineers

To expound, let’s say a lawyer’s client is irate about the judgment that was passed on their case, and fully believes it’s based on your actions or negligence. Even though the lawyer explained every outcome of the case, including this one, they continue to proceed with legal action against the company.

The attorney finds themselves in court and the judge rules in the client’s favor. The accumulated court costs and legal fees are added to the awarded settlement… As you can see, things can tally up rather quickly, and that’s where E&O insurance kicks in.

With a policy in place, legal fees and the cost of damages are covered (up to the limit stated in the policy). What’s specifically covered varies by company and state. Criminal allegations and prosecutions are generally not covered.

Medical Malpractice Insurance

Medical malpractice insurance is for healthcare professionals:

  • Doctors
  • Nurses
  • Home Health Care Providers
  • Physical and Occupational Therapists

Medical malpractice insurance may be required by hospitals, clinics, home care agencies, credentialing authorities, and licensing agencies. Some states require a policy with a minimum amount of coverage.

This type of insurance covers medical professionals if their care or negligence causes their patient’s injury or death. Medical negligence can happen during surgery, diagnosis, treatment, or the advice given to a patient.

For example, a doctor prescribes their patient the wrong medication causing them bodily harm and long-lasting side effects. If the patient decides to sue their doctor, medical malpractice insurance will help shoulder the financial burden with the doctor.

Medical damages, punitive damages, and legal fees are covered under the policy. 

There are about 17,000 medical malpractice claims filed every year. With that said, the need for malpractice insurance is vital for medical professionals.

In a study by Johns Hopkins Medicine, they found the third leading cause of death in the US is medical malpractice.


Directors & Officers Liability Insurance

Directors & Officers Liability Insurance (D&O) is a unique type of liability insurance because it protects decision-making-level positions, if they make poor choices or mistakes. D&O insurance is for professionals holding these positions in small businesses, nonprofits, corporations, enterprises, etc.:

  • Managers
  • Officers
  • Director
  • Human Resource Department
  • Shareholders

The organization pays for the policy that covers the positions listed above. 

Having a policy helps the company cover legal fees and settlements, if they are sued due to their manager’s or director’s oversight.

To paint a picture again; an employee sues the company because they believe they were fired for no reason. As the investigation unfolds, the truth comes out that the manager didn’t have the proper documentation to start the termination process. That simple error led to the employee winning their case in court.

If there are any financial ramifications, D&O insurance will step in to cover them.

Important: All government contracts require professional liability insurance.


Retroactive Date

A retroactive date is generally a claims-made policy feature, like professional liability and E&O insurance. It allows an occurrence that already happened to be eligible for coverage

Retroactive dates can be tricky, but we’ll try to simplify it: When you initially start a professional liability insurance policy, the retroactive date will be the date your policy started.

Say you’ve had professional liability insurance for about three years, with no lapse in coverage, and you want to switch carriers. Make sure to clarify with the new carrier that you’ve had uninterrupted coverage since March 15th of 2019 – and that will be your retroactive date.

**Any occurrences in your claims history that predates the retroactive date will not be covered.


Wondering what type of professional liability insurance is right for you and your business? Speak with Zupnick & Associates to answer any questions.

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