Professional liability insurance pays for claims from the failure to perform duties expected of you as a professional. Examples of professions that require professional liability are lawyers, accountants and teachers. General liability only pays for bodily injury and property damage, so professional liability fills the gap in coverage by paying for errors, omissions, contract disputes, mental anguish and other risks not covered by general liability. It also pays court costs to defend against accusations, regardless of the merit of the accusation.
Miscellaneous Professional Liability
There are many common professions that require professional liability coverage, such as doctors, lawyers and accountants. However, there are countless other professions that do not fall within these traditional categories that will have the possibility of lawsuits arising out of contract disputes. These professionals should purchase professional liability coverage, which is typically referred to as miscellaneous professional liability. Examples of these professions include auctioneers, court reporters, employment agencies, consultants, property managers and technical writers. All of these professions could be sued for financial losses as a result of a professional mistake.
Claims-made vs. Occurrence
Most professional liability policies are written on a claims-made basis, which is different than most other insurance policies which are written on an occurrence basis. Occurrence claims policies pay if a loss happens, even if the claim is filed after the policy expires. Claims are paid if the occurrence is in the policy terms. Claims-made policies only pay if the loss occurs and the claim is filed while the policy is in force. If a claims-made policy expires, then the coverage is over, and you give up your right to make a future claim.
Claims-made policies contain a retroactive date. This date is the furthest back the insurance company will pay claims. If a loss happens before the retroactive date, then the claim will be denied. When you start a claims-made professional liability policy, the first date of coverage is the retroactive date. As you renew the coverage in future years, the policy keeps the same retroactive date. Companies typically honor a previous retroactive date if you switch your coverage to a new company; however, if you let the insurance lapse for any reason, the retroactive date is typically reset, and older claims will be denied.
Tail and Nose Coverage
You can sometimes add coverage to your policy by purchasing nose coverage. This makes your retroactive date earlier than the original date the policy was purchased. Also, when you leave a job, you might want to continue the ability to make claims by purchasing tail coverage. This coverage is bought at the end of a claims-made policy and extends the time you are able to make a claim on the policy. When purchasing tail coverage, you typically purchase a set amount of additional time. You must choose to buy tail coverage before the policy expires.
Application Process and Cost
Miscellaneous professional liability policies typically have seven to 12 pages of applications to fill out. You must answer many questions about what you do and your experience in your profession. Many professional liability policies have a minimum premium of between $300 to $800, and can be more expensive with higher risk professions.