Shall a business opt for general liability or professional liability insurance & why?
While providing advice and services to customers, our job performance can sometimes fall short of the perfection our customers are looking for. In some unfortunate cases, these will provide reasons for customers to take legal actions against their providers, so they can obtain monetary compensation for the loss they had suffered due to the incompetency in fulfilling the outsourced jobs. The problems can also be something perceived by the customers and it can be a bitter experience, but nevertheless the professionals still need to face legal actions that can deplete them of their valuable money, time and energy. Without professional liability insurance, the business needs to pay out of their pocket and this can be very demanding on small businesses where the cash flow is not that huge.
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Professional cases like this are not covered by general liability insurance, because it involves errors and omissions, malpractices and other kinds of problems related to professional settings. Thus, it is best for businesses to find insurance agent that can covers for both general and professional liability cases. Among the businesses that usually need professional liability insurance are accountancy, architecture, surveying, consultancy, designers and many others. An article on Simply Business can help us to understand more clearly about this necessity in the business world of today.
How to decide on buying professional liability insurance?
When you’re deciding whether your business needs professional indemnity insurance, first check whether your regulator or professional body requires you to hold a policy. If you work in accountancy, architecture or chartered surveying, it’s likely that you’re obliged to have professional indemnity insurance.
You may also find that your client contracts require you to have a particular level of professional indemnity insurance.
Even if this isn’t the case, it’s quite likely that you will still decide that your business needs professional indemnity cover, both to reassure potential clients and for your own security.
It’s a particularly popular insurance for businesses that give advice, provide a professional service, or handle client data and intellectual property. This is because it can pay claims made against you for financial loss suffered by a client, perhaps because you’ve mishandled data or you’ve given the wrong advice. As a result, it’s bought by many business types, from IT consultants to designers to accountants. Read more here!
When you have decided which type of insurance is the best for your business, you can be rest assured that the future prospect of your business is also brighter because potential customers would be happy to know that you even provide coverage as quality assurance of your service. If they have a choice between a consultant that think ahead to cover for their potential losses, with another that does not, the chance is that the business opportunity will come your way is very apt. It is quite common when the business is not covered with professional liability insurance, the cases brought against it can even bring the business to its end, due to bankruptcy. It is good that Marianne Bonner shares a sample situation on how a claim can arise in professional setting at the balance small business blog, so we can have a better understanding of it.
How a situation can arise to a claim for monetary compensation
Peter owns Peerless Programming, a small company that provides computer programming services to businesses. Peerless develops software programs that are customized for each client. The company is insured for liability under a standard ISO general liability policy. Peerless does not have errors and omissions liability coverage.
About a year ago, Peerless Programming was hired to create an inventory management and tracking system for Harry’s Hardware, a small chain of hardware stores.
Peerless created the system and installed it in the stores. The work was completed six months ago. Now Harry’s Hardware has sued Peter’s firm. The lawsuit claims that the computer program Peerless created is unusable because it is full of bugs. It also alleges that Peerless failed to adequately test the program and that its negligence has cost Harry’s thousands of dollars in lost work time.
Harry’s seeks $100,000 in compensatory damages. Read more here!
In some ways, business situations can be likened to politics. One day you went golfing with your best client, then the next month she or he challenged you in court for some professional works that did not turn out well. Now begin long months of legal battle on professional contract both of you had happily signed half of a year ago. Due to this uncertainty in the age of legal suits, protection for both you and your customer through carrying professional liability insurance is no longer an option, but almost a necessity if you wish to grow your business to the next level. Eric Halsey has more to say about this important decision that you need to make for the future of your business. Read his piece at Insurance Journal.
Know the difference between insurance and surety bond
The largest difference between P/C insurance and surety bonds lies in what entity ultimately has to pay claims. While initially, insurance carriers for both P/C insurance and surety bonds will pay a claim, with a surety bond the insured is ultimately responsible for paying any valid claims which arise, plus legal costs. In a sense, a surety bond is a line of credit to ensure a valid claim will be paid promptly. What it doesn’t alter is the insured’s responsibility for those claims.
Further, while P/C insurance is designed to protect the insured, a surety bond is designed to protect the insured’s customers. That’s why a surety bond is often required for professional licenses. Read more here!
However, there is another option that you can resort to in professional liability cases. That is, by having surety bond to protect the customers. Usually, this involves certain profession which requires surety bond before a professional license can be issued and professional endeavors can begin to operate legally. A good example is an insurance broker; he or she needs to have surety bond before starting business and looking for customers. Huge monetary risks in insurance field requires this protection for customers.
Finally, in professional fields where this type of coverage is obligatory, of course there is no other recourse. For other businesses, it depends on the wisdom of each business owner, whether to pursue the best business strategy or remain where they currently are pertaining to professional liability insurance. General liability insurance certainly is not enough to cover everything.