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General Liability v. Professional Liability Insurance

People are human, it turns out, after all. That's true whether they are neurosurgeons, high-power attorneys, mechanics, retail store owners or anything in between. Despite all the 'best practice' advice and all the systems and protocols, human error happens and it happens in all professions, in all industries and at all levels.

Many business owners and professionals, however, are terribly exposed to financial liability that can arise from a professional error. They too commonly assume that their general liability insurance that covers their business will cover them in the event of a professional error, omission or oversight. It will not.

It's important to understand the difference between 'general liability' and 'professional liability' insurance, and how it is underwritten and priced. A general liability policy is designed to be applicable and to cover events, hazards and risks that could happen to any business. For example, it doesn't matter whether you sell heart transplants or used tires - any business that has people walking into the office, shop or showroom from the parking lot for any reason could face liability as a result of a slip and fall on an icy step.

Every business on Main Street in your downtown faces that risk, more or less equally (though some have more traffic than others) and all of them have an incentive to purchase insurance protection.

However, the doctor's office is not going to be exposed to the same errors as the second-hand clothing store next door - and it doesn't make sense for a clothing store owner to pay into the same risk pool to cover the very large possible liabilities that doctors have in the event of a malpractice suit.

For this reason, the insurance industry has developed industry-specific insurance policies to cover various professionals for errors and omissions that may occur that are specific to those professions or industries.

Professional liability insurance - sometimes called 'errors and omissions insurance' or - in the medical profession, 'medical malpractice' insurance, is the only coverage that will protect you against mistakes you may make in the course of practicing your profession. This protection typically includes payment for judgments/settlements up to your policy limits but also includes assistance with defense costs that can run into the tens of thousands of dollars or more.

Examples of professional liability claims include:

  • Accusations of negligence
  • Failure to perform your responsibilities in a contract
  • Damages from lost paperwork or filing errors
  • Violations of privacy laws or data compromises
  • Shoddy or substandard work
  • Sale of unsuitable investments or other financial products
  • Violation of fiduciary duty
  • Making a car repair that failed (i.e., the wheel with the tire you just installed fell off the car two minutes away from the shop, killing someone)
  • Lawsuits arising from membership on a corporate Board of Directors
  • Lawsuits arising from activity on a homeowners' association board or non-profit board of directors.

 

In some cases, depending on your industry, you may need something called Products-completed Operations Liability insurance.

At any rate, all of these items are probably excluded on any non-industry specific general liability insurance policy. If you don't have industry-specific insurance in place that explicitly covers professional liability, you are at severe risk. Contact your insurance professional if you have questions.

 

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