Professional liability insurance is a type of business liability coverage that protects professionals against financial obligations incurred as a consequence of mistakes and omissions in executing their professional services. Professional firms, such as medical offices, legal partnerships, accounting firms and engineering companies, are required to carry professional liability insurance coverage, as general business liability policies do not provide protection against a client’s claims of malpractices, negligence or misrepresentation. Other types of professionals, such as financial consultants, general contractors and real estate brokers, can also choose to obtain professional liability coverage to protect themselves from client’s claims of professional mismanagement.The purpose of professional liability coverage is to insulate professionals and companies who offer advice and services from incurring the full monetary value of legal negligence claims made by clients, as well as any additional compensatory or punitive damages the client may be awarded in a civil lawsuit. Professional liability coverage centers on protecting professionals from allegations of damage attributable to errors or omissions on the part of the policyholder.
Some professional liability policies also provide coverage for the firm’s legal defense costs. These riders can be especially helpful when a client’s claims are show to be without merit. Even when a client’s lawsuit is dismissed, the firm must still incur the costs of its defense counsel, so the additional coverage can defray some or all of those costs. However, unlike commercial general liability policies, the defense cost coverage lowers the limits available on professional liability policies.