What Is Professional Liability Insurance?
Professional liability insurance (PLI) is insurance that protects professionals such as accountants, lawyers, and physicians against negligence and other claims initiated by their clients. Professionals who have expertise in a specific area require this type of insurance because general liability insurance policies do not offer protection against claims arising out of business or professional practices such as negligence, malpractice, or misrepresentation.
- Professional liability insurance is used in businesses to protect against claims of negligence.
- Professionals such as accountants and doctors use this insurance to protect themselves against client claims of negligence or malpractice.
- Professional liability insurance is also referred to as medical malpractice insurance or errors and omissions insurance, depending on the professional.
How Professional Liability Insurance Works
Depending on the profession, professional liability insurance may have different names, such as medical malpractice insurance for the medical profession, and errors & omissions insurance for real estate agents. Professional liability insurance is a specialty coverage that is not provided under homeowners' endorsements, in-home business policies, or business-owners' policies. It only covers claims made during the policy period.
Professional liability insurance policies are usually arranged on a claims-made basis, which means coverage is good only for claims made during the policy period. Typical professional liability policies will indemnify the insured against loss arising from any claim or claims made during the policy period by reason of any covered error, omission or negligent act committed in the conduct of the insured's professional business during the policy period. Incidents occurring before the coverage was activated may not be covered, although some policies may include a retroactive date.
What Professional Liability Insurance Does Not Include
Coverage does not include criminal prosecution, nor all forms of legal liability under civil law, only those listed in the policy. Cyber liability, covering data breach and other technology issues, may not necessarily be included in core policies. However, insurance that covers data security and other technology security-related issues is available as a separate policy.
Professional Liability Policy Wording
Some professional liability policies are worded more tightly than others. While a number of policy wordings are designed to satisfy a stated minimum approved wording, which makes them easier to compare, others differ dramatically in the coverages they provide. For example, breach of duty may be included if the incident occurred and was reported by the policyholder to the insurer during the policy period.
Wordings with major legal differences can be confusingly similar to non-lawyers. For instance, coverage for "negligent act, error or omission" indemnifies the policyholder against loss/circumstances incurred only as a result of any professional error or omission, or negligent act (i.e., the modifier "negligent" does not apply to all three categories, though any non-legal reader might assume that it did). Meanwhile, a "negligent act, negligent error or negligent omission" clause is a much more restrictive policy, which would deny coverage in a lawsuit alleging a non-negligent error or omission.
Example of Professional Liability Insurance
Medical malpractice insurance is a common example of a type of professional liability insurance. Medical professionals do their work under the not inconsiderable threat of facing lawsuits for alleged medical malpractice, which is defined as an act or omission by a medical provider in which they provide treatment that falls below the standard of care, resulting in injury to or the death of the patient. While most medical malpractice cases are treated as civil torts in the United States, medical malpractice insurance can offset the cost of such lawsuits to providers.