What is professional liability insurance?
We’ve already discussed the importance of having a Commercial General Liability policy for your business, but some enterprises need to protect themselves against more than just bodily injury and property damage claims. This is where professional liability insurance coverage comes into play.
Professional liability insurance, also known as “Errors and Omissions”, is a type of insurance policy held by professionals such as accountants, financial institutions, lawyers, architects, engineers, appraisers, portfolio managers, software companies, and insurance brokers, just to name a few. These professionals offer services to their customers rather than a tangible product, which is why they need this specific type of insurance; a bad RRSP consultation isn’t going to burn anyone’s house down. Their main exposure comes from the potential to cause financial harm, either through negligence, a mistake, or incorrect advice to their clients. Some examples of this would be a portfolio manager who purchases a stock that loses a significant portion of its value shortly after, or an appraiser who miscalculates the value of a building.
An errors and omissions policy will also cover your business for breaches of contractual liability, or liability assumed under a contract. An example of this could be a software company that signs a contract to develop a program for a client, which must be delivered by a certain date. If the delivery date is not met, the client can sue the software company for breach of contract in order to be reimbursed for their extra costs or lost revenue caused by the delay.
Manufacturers can also be susceptible to professional liability claims as well. They could fail to deliver the product on time, make an order in the wrong colour, or fail to meet the specifications ordered by their customer. Again, this mistake would not cause direct physical damage to a third party but the manufacturer could be held responsible for their client’s financial loss.
For some professions, errors and omissions insurance is mandatory and is purchased through the governing body or association. It can usually also be purchased through your local commercial insurance broker, like KBD!
In the end, we’re all human, and everyone makes mistakes. It’s important for companies to make sure that they are well protected if their business decisions have the potential cause financial harm to their clients. As the old saying goes, an ounce of protection is worth a pound of cure.