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Professional liability insurance: what is it and how does it work?

Professional Indemnity (PI) coverage is a type of business insurance that protects businesses against claims for financial loss resulting from negligence or actual negligence in the performance of professional services. Depending on the industry, this form of protection may go by different names. Examples include error and omission (E&O) insurance in real estate, professional liability insurance (PLI) in construction, and malpractice insurance in the medical and legal fields.

According to the Insurance Information Institute (Triple I), there are two types of professional liability insurance:

  1. Billing policy: Covers claims only if the error was made and the lawsuit was filed while the policy was in effect.
  2. Occurrence policy: Covers all claims that occur during the coverage period, even if the claim is made after the expiration of the policy period.

Regardless of industry, each professional must carry out their work without fear of unintended consequences. This is what professional liability insurance is for. This type of coverage allows professionals to act in the best interest of their clients and their business, knowing that they will be protected if they make a mistake.

PI insurance differs from other forms of liability insurance, such as general liability insurance and products liability insurance.

Comprehensive Liability Insuranceis sometimes referred to as business liability or business liability. public responsibility, protects companies against claims for personal injury or property damage resulting from business activities. Also, companies do not receive compensation for this type of compensation. Instead, a payment will be made to the affected third party. Without this kind of protection, companies would have to pay out-of-pocket insurance claims.

Product liability coverage protects companies from lawsuits from customers who claim that their products caused loss or injury. Designed for companies that sell products, this form of insurance also covers legal defense costs and coverage in the event of business negligence.

Professional indemnity insurance covers legal and settlement costs arising from service-related mistakes. These include:

professional negligence

This occurs when a professional fails to perform duties and obligations to the required standards. Examples of professional negligence include an accountant giving poor financial advice, a client missing out on a huge tax benefit, or a healthcare professional administering the wrong medication, causing serious injury. This includes complications and patient death.

breach of contract

This occurs when a professional breaks the agreed terms of a binding contract. This includes the inability to provide certain services as stated in the contract, resulting in significant financial loss to the client.


This happens when a professional makes a false statement to get a customer to agree to a contract. This includes real estate agents padding square footage of properties to increase property values, and insurance professionals inflating service costs or charging for services that were not provided. If misrepresentation is discovered, the affected party may void the contract and seek damages.

professional misconduct

This occurs when a professional violates the rules or standards set by the legal body of the profession. Also this:

  • Failure to obtain client informed consent
  • Withholding important information from clients
  • Employment of persons with disabilities
  • breach of confidentiality
  • Poor documentation and record keeping

Our Professional Responsibility Policy does not cover:

  • Legal or medical costs resulting from bodily injury.
  • Property damage suffered by the customer during the provision of services.
  • Lawsuits brought by employees due to allegations of unfair dismissal or workplace harassment.

The first two are covered by general liability insurance and the third is covered by general liability insurance. Employment Practices Liability Coverage.

Individuals or businesses that provide professional services or advice to clients should have professional liability insurance for good reason. Allegations of negligence, inaccurate advice, and misrepresentation can result in prohibitive costs and can easily drain a company’s financial resources, whether or not liability is proven. Professional coverage can protect them financially from the huge costs that arise from lawsuits.

The table below summarizes how professional liability insurance protects specific occupations.

Businesses in certain industries are required by law or industry standards to carry professional liability insurance. Some clients may also require a professional or company to have this type of coverage in place before agreeing to do business. Below are some of the occupations that require coverage in the United States .


Healthcare professionals are required by law to have malpractice insurance. These include:

  • doctor and doctor
  • nurse
  • dentist
  • psychologist
  • Occupational therapist, physical therapist, speech therapist
  • Other health care providers

This type of occupational protection insurance protects medical practitioners from claims for patient injury or death caused by negligence.


Legal malpractice insurance is currently required in only two states, Idaho and Oregon. However, nearly half of all states in the United States have implemented some form of disclosure rule that requires attorneys to inform clients whether they have coverage.

real estate expert

Some states require realtors and brokers to have insurance against negligence and omission. These include:

  • colorado
  • Idaho
  • Iowa
  • kentucky
  • Mississippi
  • Nebraska
  • new mexico
  • north dakota
  • rhode island
  • south dakota
  • Tennessee
  • wyoming

However, requirements vary by state. For example, Colorado and Nebraska require realtors to obtain policies with a minimum annual gross limit of $300,000. In Iowa and Mississippi, the minimum is $100,000.

insurance expert

Some states also require insurance agents and brokers to cover errors and omissions. As with real estate professionals, each state has different requirements. Rhode Island requires industry professionals to cover a minimum aggregate policy limit of $500,000. In Tennessee, the minimum is $100,000.

government contractor

under Federal Acquisition Regulation According to the (FAR), companies working on government projects must have professional liability insurance to protect against “risks to which contractors are exposed.” These businesses include:

  • construction company
  • Professional service providers, including financial and public relations firms
  • IT specialists, including consultants and cybersecurity experts
  • Transportation and Logistics Service Provider
  • Pharmaceutical and healthcare service providers

Whether professional liability insurance is mandatory for certain occupations also varies by region. Professionals in Canada and the UK are not required by law to have insurance, but some industry associations require it for individuals and businesses to operate. In Australia her PI insurance is required for occupations considered high risk such as:

  • accountant
  • architect
  • bookkeeper
  • Engineers
  • legal practitioner
  • healthcare professional
  • IT consultant
  • marketing consultant
  • real estate expert

Not all occupations are legally required to have professional accident insurance. However, while coverage is not always mandated, industry experts believe that most individuals and businesses purchase this type of financial protection, especially if they are in the business of providing professional or advisory services. I advise you to do so.

Here are some occupations where professional property and casualty insurance is considered essential.

Occupations Requiring Professional Liability Insurance

List of Industries with Mandatory Professional Liability Insurance

As mentioned in the previous section, not all professions are required by law to have professional liability insurance. However, some trade associations require that professionals in their field receive compensation for practicing or running a business.

Below is an overview of the industries where professional liability insurance is mandated in the United States.

Industries that need professional coverage insurance What experience do you have with professional property and casualty insurance? Let us know in the comments section below.

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