COMMERCIAL PROPERTY & CASUALTY
Why General Liability May Not Be Enough
Cover all the bases—protect your business with professional liability where general liability falls short.
Managing risk is key to keeping any business thriving for the long haul. While most business owners are familiar with general liability insurance—it’s almost a given—professional liability insurance often flies under the radar, even though it's just as essential.
Knowing the difference between these two coverages (and why you need professional liability) could save your business from significant financial headaches down the road.
What is General Liability Insurance?
General liability insurance is designed to protect your business from claims involving third-party bodily injury, property damage, and certain kinds of personal injury (like slander or defamation). For instance, if a customer slips and falls at your business, your general liability policy would cover medical expenses and legal costs, if necessary.
What is Professional Liability Insurance?
Professional liability insurance, sometimes called errors and omissions (E&O) insurance, covers claims that arise from your professional services. This type of insurance protects you if a client alleges that your services caused them financial harm due to mistakes, negligence, or failure to deliver on your promises.
While many business owners think general liability insurance covers all potential risks, they may not realize that professional liability addresses a different kind of risk—one not covered by general liability. In fact, not having professional liability insurance is one of the biggest financial risks your business can face, especially if you provide services or advice.
Real-World Examples of Professional Liability Claims
Here are a few scenarios where professional liability insurance would come into play:
- Missed projections or underperformance: A financial consultant recommends an investment strategy that doesn’t deliver the expected returns, and the client sues for losses.
- Faulty workmanship: An electrical contractor fails to properly wire a building, and the job must be redone. Many contractors assume a Commercial General Liability Policy covers faulty workmanship, but most policies exclude coverage for fixing errors and damages caused by defective work.
- Mistakes and oversights: An accountant makes an error in a client’s tax filings, leading to an IRS audit and penalties, which causes the client to take legal action.
- Incorrect advice: A lawyer provides incorrect legal advice or misses a key filing deadline that results in a negative outcome for a client and the client sues for damages.
Why You Need Professional Liability Insurance
The need for professional liability coverage is on the rise, fueled by an increase in new business ventures, demand for quality services, and growing risk from social media.
Here are a few vital reasons why you should consider adding or updating your professional liability coverage:
- Mistakes happen: No matter your expertise, oversights can occur. If an error costs a client money, they may seek damages, but professional liability insurance can help cover those costs.
- Litigation is rising: In today’s litigious society, the risk of being sued is at an all-time high. Even more staggering is the fact that “nuclear verdicts” – jury verdicts over $10 million – are quickly becoming the new norm in jury awards.
- Broad claim protection: This insurance shields you (and your personal savings) from claims like negligence, errors, and omissions, reducing financial risk even if you're contractually covered.
- Third-party risk: Collaborating with other businesses increases exposure to professional mistakes, extending liability beyond your own operations.
- Digital exposure: With the internet and social media, your business is more visible than ever, which increases the chances of potential lawsuits.
- Protection against frivolous lawsuits: Even if someone files a baseless lawsuit against you, the cost of your defense could be significant. Professional liability insurance covers that cost.
Ways to Mitigate Risk
The first step in mitigating risk is understanding that liability insurance is not one-size-fits-all. General liability and professional liability cover different aspects of your business. For comprehensive protection, both policies are essential.
Additionally, having strong contracts in place with your clients can help define responsibilities and protect you from liability in certain situations. However, contracts alone aren’t foolproof. They may not always hold up in court, and relying on them as your sole defense is risky.
Protect Your Business From Costly Situations
While general liability insurance is important, it only addresses certain risks like bodily injury or property damage. On the other hand, professional liability insurance protects against the more intangible concerns that come with delivering services, advice, or expertise. As more businesses engage with third parties and exposure increases through digital channels, the need for professional liability insurance becomes more critical than ever.
A simple mistake or oversight could lead to costly legal battles, tarnished reputations, and severe financial strain. Having professional liability coverage is one of the smartest ways to safeguard your business in today’s complex and litigious environment.
Work with a Proactive Broker Partner
As the industry undergoes continuous change, so must your company’s policies and procedures. Staying proactive and embracing new standards will help your company navigate the dynamic business landscape with confidence and resilience.
If you have questions about your coverage, contact me at Marco.Behori@thinkccig.com – we can review your options together and ensure your risk management approach is strategic and comprehensive.