General liability insurance and professional liability insurance are two types of commercial insurance that cover you when you're sued by a customer or another business. However, the matters that they cover are quite different. How can you tell which types of coverage your business needs in order to protect itself legally? Read on to learn what each type of insurance covers and how to tell if your business needs to carry professional liability insurance as part of its commercial insurance policy.
What Is General Liability Insurance?
General liability insurance covers you when a non-employee sues you for physical injury, property damage or defamation. These are risks that all businesses face, and they aren't tied to any sort of expertise that your business has in its field.
If you're sued, general liability insurance will cover your legal costs as well as the costs to repair the damage that occurred — for example, a customer's medical costs after a slip-and-fall accident or repair costs after your business damages a client's home or business.
What Is Professional Liability Insurance?
Professional liability insurance, on the other hand, is directly tied to the service that your business provides. It's also often referred to as errors and omissions insurance, and it's referred to as malpractice insurance when it covers medical professionals.
If you're providing a service for a business and make an error or give them incomplete information, they may lose money as a result. They may try to sue you for financial damages in order to recoup the money that they have lost. In this case, you'd be covered by your professional liability insurance. Like general liability insurance, it pays your legal costs along with any judgment or settlement that results from the case.
Note that professional liability insurance protects you even when you don't make a mistake. A client may decide to file a lawsuit against you simply because they were unhappy with the result, even though you fulfilled everything specified in the contract.
While a frivolous case may be easy to win, you still need legal representation to defend yourself. Unfortunately, this is often quite expensive. Professional liability insurance can help your business avoid mounting legal fees from incidents where your business made no error at all.
Does Every Business Need Professional Liability Insurance?
It's a good idea for every business to carry general liability insurance. Accidents that result in physical injury or property damage can happen to nearly any business. However, not all businesses will require professional liability insurance.
A convenience store or restaurant, for example, typically won't provide much professional advice in the course of doing business. If they begin consulting with other stores in order to help them improve their revenue, however, then it would be a good idea to add professional liability insurance to their commercial insurance portfolio — if the advice given is incorrect, the consulted client may sue.
Conversely, other businesses will need much greater amounts of professional liability coverage than general liability coverage. For example, attorneys and IT companies are at a greater risk of causing significant financial damage to a company compared to causing property damage or bodily harm.
In order to find out whether or not your business needs professional liability insurance and if you need large amounts of coverage due to your field, consult with a commercial insurance agency. Preferably, you should work with one who has expertise insuring other businesses in your field — they'll have a better idea of lawsuits that are commonly filed against companies in your industry along with their severity.
If your business is at risk, adding professional liability insurance to your commercial insurance portfolio will protect your business from legal fees, judgments, and settlements that can damage your business financially.Share