Your business isn’t “just business.” It’s your livelihood. Safeguard it from expensive settlements and lawsuits.

Professional liability insurance differs from general liability, which protects you from customer lawsuits about property damage or injury. And it’s not included in business owners policies, but it’s crucial to business risk management.

Professional liability insurance protects you if you make a mistake, give bad advice or fail to deliver on a promise while practicing your profession. It’s sometimes called “malpractice insurance” or “errors and omissions insurance.” It helps protect your professional commitment to provide competent work.

Why clients might sue you

Customers come to you for expert advice and services, which comes with professional responsibility. Anyone who offers services or advice can be sued for negligence. That can expose you to a broad spectrum of lawsuits. Customers could sue you for things such as:

Poor communication, like inaccurate pricing or unrealistic outcomes. Let’s say you build a website for a client. You tell them your websites are search engine optimized to guarantee major web traffic that increases sales. Five months after the launch, your client sues you. They claim your website didn’t increase web traffic or generate sales. Even though you meant they’d also need to post blogs and social media content, your client had an unrealistic expectation of your work.

Administrative errors can cause delays in your work. Let’s say you shelve a poster print run because a client didn’t respond to your request for final draft approval. Meanwhile, your client is expecting the final draft. Their upcoming event depends on it. You input the wrong email address and didn’t call them to follow up. The print run is delayed, and your client loses advertisement time. They sue you.

Failure to disclose, like not giving a client adequate instructions. Let’s say you own a jet ski rental business. You usually demonstrate safety information and provide it in printed form. One busy day, you forget the safety demonstration for a client and assume they’ll read the printed information. Instead, they speed through a waterway, narrowly missing swimmers, and crash into a speedboat. They sue you for failing to instruct them on jet ski operation.

If you fail to meet specific standards, people can sue you. But even if you meet those standards, unhappy customers can still sue you. Whether you're at fault or not, you have to defend yourself in court.

Each professional liability claim is different

Each lawsuit is like a fingerprint. With all the factors that go into a legal judgment, you can’t count on similar results for each one. Just because another business owner you know settled out of court quickly doesn’t mean that will happen for you. Court cases have a lot of moving parts, such as:

• Lawyers
• Judges
• Your location
• Mitigating circumstances
• Evidence (what’s admitted and what isn’t)
• Your business records and notes (or lack of)
• Specific circumstances of the claim
• Societal norms
• A jury’s perception of the event (if it goes to trial)
• Personal and professional history
• Other unknowns

Not having professional liability insurance when a claim is made can have several legal and financial implications.

How professional liability insurance can help

Professional liability insurance responds when you file a claim. If a client threatens to sue, tell your agent. They’ll help you navigate the next steps. If the claim ends up in court, your insurance coverage will provide legal help from people well-versed in professional liability claims.

Financial liability

Your finances are an immediate concern. Without insurance, you’re personally responsible for paying your legal defense and any resulting damages awarded by the court or a settlement. 

Verdicts of over $10 million are becoming more common. These are known as "nuclear verdicts."  Lawyers are often willing to wait for a jury trial rather than accept a lower settlement offer. Lawsuits can take years and cost tens or even hundreds of thousands of dollars, depending on the situation.

Bankruptcy

Because the cost of mounting a legal defense can be so high, you could go bankrupt if you’re found liable in a lawsuit. It’s possible to go bankrupt before a judgment if your legal fees are high enough. For example, you might hire the best lawyer for the job until your money runs thin. You’d be forced to switch lawyers if you can’t afford to pay or agree to a settlement.

An extended lawsuit is stressful, even without financial strain. It can affect your personal and professional life, regardless of the outcome.

Reputation damage

Legal proceedings usually enter the public record, which can damage the reputation of the professional involved. A legal strategy and team that knows how to negotiate a settlement before reaching court can help. Without it, you run the risk of a tarnished public image. This can cause clients to lose faith in you and leave.

Loss of professional license

Some professions have governing bodies that will revoke your license if you can’t meet your financial obligations arising from lawsuits. These include lawyers, doctors and certified public accountants. Your ability to earn a living may be compromised if you can’t practice your profession.

Citations and fines

Depending on where you do business, professional liability insurance might be mandatory. You could be cited for not carrying proper insurance, even without a lawsuit.

Loss of personal assets

If you face a claim without adequate insurance, courts might require you to use your personal assets to pay the damages and fees. Your house, savings, investments, current and future earnings, and any assets or businesses in your name could be at risk.

Increased risk for more lawsuits

If you have one public lawsuit, others may follow. This can cause an overwhelming financial strain and reputational burden.

Remember that professional liability insurance does not protect you from fraud, criminal acts or intentional harm. 

Call your Rathbun Insurance Commercial Account Executive and your Lawyer

The last thing you need to worry about is whether you can mount and maintain a legal defense. Professional liability insurance can provide peace of mind because it guarantees a legal defense for covered claims.

Protect what you’ve spent so long building, professionally and personally. Talk to your Rathbun Insurance Commercial Account Executive and lawyer for a complete rundown of your liability exposures. Your agent can help you customize your policy to meet the needs of your business operations.