When is professional liability insurance required?


Essentially, if you are providing a service or advice in exchange for a fee or a commission, you need professional liability insurance. This includes professions such as:

  • Accountants
  • Architects and contractors
  • Financial advisers and stock brokers
  • Health care professionals
  • Real estate brokers
  • Lawyers
  • Appraisers
  • Technology consultants and other types of consultants
  • Software developers

There are a lot of other professions that are not in this list but that will also need professional liability cover.

Why is liability insurance needed?

The basis of professional liability insurance is that as a professional, the industry where one belongs has a certain set of standards. There is an expectation of discipline and competence that one has to meet with regards to a certain field. One is also expected to provide a certain level of accuracy and professionalism during the performance of his service. For instance, architects are expected to provide good, structurally sound building designs, fund managers are expected to provide sound financial and investment advice and so on.

When a person fails to meet these standards, whether by something that he did or something that he failed to do, that person may be held by his clients as responsible for any harm or financial loss that arise.

For instance, if a lawyer settles a lawsuit contrary to the interests of his client and the client in turn experiences a financial loss, the client can file a liability suit against the lawyer. If an accountant makes a mistake in a person's tax returns that causes that person to be penalized by the IRS, the client can sue for the losses he experienced.

Mistakes Can Be Made

Let's face it, no matter how hard you try, how hard you train your employees, there may be instances where mistakes (whether intended or not) are made. And if these mistakes will make you liable to another party - your client - then you will need professional liability insurance.

Professional Liability Insurance vs. General Liability Policy

Even if you have a general liability policy, you will still need professional liability insurance since general insurance will usually cover for risks such as personal or advertising injury, property damage and bodily injury. Professional liability insurance is focused more on financial loss.

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