What is Professional Liability Insurance?

Professional liability insurance, sometimes known as errors and omissions insurance, or E&O insurance, protects individuals and business owners against mistakes, negligence, misrepresentation and more.

Simply put, if you provide professional services of any kind, you’ll want E&O coverage since it’ll protect you from financial loss and lawsuits. While some people may not think professional liability insurance is worth it, once you understand how it works, you’ll wonder why you didn’t purchase it earlier.

What is professional liability insurance?

Professional liability insurance is a type of business insurance that protects individuals or businesses from someone that accuses them of making a mistake and more.

This type of insurance is common with doctors, consultants, engineers, and lawyers, but other professionals such as content creators, journalists, or even artists may want to have it too. That’s because someone could make a claim against you for one of the following reasons:

• Professional negligence – The most important part of your insurance coverage is arguably professional negligence. This is where you make a mistake or provide inadequate work, and someone sues you. For example, an engineer makes a wrong calculation and causes property damage.
• Breach of contract – Let’s say you can’t complete your work due to unforeseen circumstances. Since you’d be in breach of contract, you could be sued.
• Defamation and libel – If you make a claim against someone in private or publicly, they could sue you for defamation and/or libel.
• Copyright infringement – Artists, writers, and content creators are always at risk of being accused of plagiarism or having their work stolen. 
• Malicious prosecution – There’s always the possibility that someone brings malicious prosecution against you. Even if you’re 100% innocent, you’ll still have legal expenses to pay for.
• Employee injuries – Anyone that has employees will want to ensure they have general liability insurance since it can protect them in case an employee suffers bodily injury while on the job. Note that general liability insurance is a separate policy.

The obvious benefit of professional liability insurance is that it’ll help you with your legal fees and court costs in case a claim is ever brought against you. Even if the judgments work against you, you’ll still have some protection.

How does professional liability insurance work in Canada?

The hope is that you’ll never have to use your professional liability insurance, but like all types of insurance, you’ll be glad you have it if you ever need it. Generally speaking, the process works like this:

• The claim process begins – Someone sues you for a work-related reason. You’ll need to contact your insurance company immediately, as they can advise you on your next steps.
• Figure out the limits of liability – Every province and territory has limits regarding the statute of limitations. You need to confirm that the person suing you is within their rights. 
• Check your deductibles – Every policy has coverage limits. Find out what yours is so you don’t get caught off guard.
• Check your records – Since someone is making a claim against you, you’ll need to gather evidence and any relevant documents to help your case. For example, if someone is suing you for wrongdoing or negligent actions, you may have proof that says otherwise.
• Decide on your options – Your lawyer should be able to advise you on your next steps. You can try to dismiss the claim or settle it to avoid high attorney fees. However, you also may need to prepare to go to court to prove that you’re not in the wrong.

Types of professionals who need professional liability insurance

• Financial planners
• Insurance brokers
• Lawyers
• Engineers
• Journalists
• Content creators
• Doctors
• Architects
• Personal trainers
• Photographers
• Real estate agents

It’s worth noting that some employers may have different types of errors and omissions insurance policies that protect their employees. However, the retroactive date typically only applies to when the employee started working for the company. In addition, that insurance policy would end as soon as you leave the company.

If you’re a professional, it’s best to have your own insurance policy in place. This way, you’re always covered.

The benefits of professional liability insurance

The benefits of professional liability insurance should be clear by now, but if you’re still on the fence about e&o insurance costs, let’s go over the pros again.

• Financial protection – Legal defense costs can add up quickly. Having insurance will ensure that any out-of-pocket legal costs are minimal. 
• Peace of mind – Most professionals strive to produce a high standard of care, but mistakes happen, and the cost of errors can be expensive. With insurance, you know you’ll be protected in the unlikely case that you’re sued.
• Protection of reputation – Professional liability protects more than mistakes. It also covers your reputation. If you’re an artist or content creator, someone may try to steal your work. Having insurance can help you recover your legal fees when you need to sue someone due to copyright infringement. 
• Compliance with industry standards – Some professions and companies require you to have a specific type of professional liability insurance. Without it, they may not be able to employ you.

How to choose an E&O policy in Canada

Generally speaking, most E&O policies in Canada are similar, but there are a few specific things you want to look out for.

• Coverage amount – How much insurance coverage you’re getting is essential. Most professionals will want at least $1 million in coverage, but some people may want more.
• Premiums – It’s always worth comparing the prices of different insurance companies. Generally speaking, higher premiums usually mean you’re getting more insurance.
• Extras offered – Professional liability insurance just covers the work you do. There are additional insurance policies you may want that will protect your business property, employees, and more. 
• Insurance provider reputation – If you’re purchasing insurance for the first time, you may want to stick with an insurance provider you’re familiar with or were recommended.

How much does professional liability insurance cost?

Various factors determine your professional liability insurance premiums. Generally speaking, a $1 million insurance policy will cost you about $700 – $1,000 a year. This would cover you just for E&O insurance and nothing else. If you add additional policies, you should expect to pay a few hundred dollars more a year, per policy.

Final thoughts

Now that you know what is professional liability insurance, you’ll likely realize how important it is to have it. The good thing is that, unlike life insurance policies, you can purchase professional liability insurance right away without any checks. That means you’ll have protection and peace of mind immediately.