What type of protection does a Professional Liability policy provide?
Professional liability insurance protects your firm from claims alleged to have been caused by its professional service activities. The policy pays for claim-related legal costs and damage payments when found liable for bodily injury, property damage, or economic losses.
This differs from commercial general liability policies, which limit coverage to bodily injury and property damage claims from non-professional service activities.
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Knowledge Base
Most policies cover a list of professional services that your business is legally qualified to perform in their capacity as an architect, engineer, landscape architect, land surveyor, construction manager, interior designer, technical consultant, or as otherwise listed by endorsement to the policy.
Typically, the “named insured” is your firm and predecessor firm names, in-addition to past or present directors, officers, employees, and leased personnel if named in a claim. Policies also generally cover liability arising from participation by your business in joint ventures.
Professional Liability insurance safeguards your business from catastrophic loss in the event of a lawsuit, covering both legal expenses and sums paid as judgments, awards, or settlements. Even baseless claims against your business can require a legal defense. Protecting your business reputation can require significant funds and can even bankrupt your business.
As long as there is a claims-made policy in force at the time the claim is made and that policy provides coverage for prior acts, there would typically be coverage.
Most professional liability policies are designed to apply on a “claims made” basis. This means that a claim must be made and reported within the policy period, but not to exceed a reasonable period of time after the policy period expires. These policies list a specific date, often called a “retroactive date”, that becomes very important. Claims that arise out of acts committed prior to the retroactive date will not be covered. The farther back the retroactive date, the more coverage provided.
Insurance company Underwriters evaluate several factors in preparing quotations, such as:
Policy limit and deductible requested
Number of licensed professionals
Number of years in business
State(s) where business is conducted
Professional service activity billings (prior 3-5 years)
Difference between projected annual and actual billings (at policy renewal)
Mix of professional disciplines, project types and clientele
Project delivery methods
Use of sub-consultants
Quality control, including use of written contracts
Office policies, procedures and training activities
Claim experience
Frequency of claims by claimant (2010-15 Travelers Survey)
30.5% Private Owners/Users
21.1% Design Professionals
16.1% Developers
12.3% State or Local Government
8.9% General Contractors
7.6% Public Institutions
3.5% All Others