What is Professional Liability Insurance?

As a professional, you might think you are not at risk of being sued. However, just one mistake or unsatisfied client can lead to a costly lawsuit. 

Ask yourself: How would your business manage if a mistake made by you costs a client tens of thousands of dollars? Or if an unhappy customer sues you for professional negligence, even when you are not at fault? 

Professional liability insurance offers you financial protection against claims alleging negligence or failure to deliver a service as promised. Without it, you could face extensive legal battles that could seriously impact your business’s financial wellbeing. 

What is Professional Liability Insurance?

Professional disability insurance, also similar to errors & omissions insurance, protects you from the allegations of wrongful business practices, breach of contract, misrepresentation, conflict of interest, and misleading advice. It pays for legal costs, judgment, settlements, and penalties, even if you are not held legally liable. 

If you do not have this coverage, you could be setting yourself for financial disaster if a client sues you for alleged negligence or failure to deliver services or products as promised. While you may have commercial liability insurance, it will not protect you against claims against professional negligence or mistakes. That is why professional disability insurance coverage is a must-have for anyone who provides advice or services for a fee.

This includes:

• Architects
• Engineers
• Accountants
• Investment or financial advisors
• Real estate agents
• Insurance brokers
• Consultants
• Software developers 

Is professional liability insurance required?

Professional liability insurance isn’t legally required by all professionals who provide services in Canada. 

However, you should strongly consider it coverage if you:

• Provide service or advice for a fee 
• Provide or deliver products

This is because mistakes made during the course of running your business could lead to costly lawsuits. 

For instance, a client may sue you if they believe your services were not up to the mark or if you fail to meet a deadline. Professional disability insurance covers legal costs, judgments, settlements and penalties resulting from allegations of below-par professional advice, misrepresentation, conflict of interest, and breach of contract.

What is covered and not covered by Professional Liability Insurance?

As professionally-competent you or your company may be, mistakes can happen. For this reason it is worth looking at professional liability insurance coverage. It protects you and your business from claims alleging financial loss because of a service you provided or lawsuits alleging misconduct, negligence, or breach of contract. 

What is covered by professional liability insurance?

Professional liability insurance protects you regardless of whether the legal cases against you have merit or not. It can pay out in case of both substantiated and frivolous claims, covering legal fees and settlement costs. 

Here are some scenarios in which a client can file a professional liability lawsuit: 

• Negligence: Say an architect designs a restaurant in Ontario. A few months later, a customer sues the restaurant because it does not provide people with disabilities an equal access to the bathroom. The restaurant in return can take legal action against the architect for failing to adhere to the Ontario Humans Rights Code. 
• Missing the agreed deadline: An online grocery company hires a cybersecurity architect for upgrading its online security system. The security architect agrees to complete the upgrade in three months, but fails to keep the promise. In the fourth month — after the upgrade was supposed to be finished, as per the contract — the company’s servers are hacked, leading to huge financial losses. The company could start legal proceedings against the security architect to recoup its losses.   
• Inaccurate or incorrect advisor: A client files a liability lawsuit claiming she suffered financial losses after acting on her financial advisor’s advice. 
• Misrepresentation: A general contractor fails to complete a building’s renovation on time. As a result, the client is forced to delay the reopening of their business, leading to loss of revenue. 
• Copyright infringement: A content writer unintentionally plagiarizes website content. 
• Violation of good faith: A real estate agent deliberately withholds key information from the buyer. 

What is not covered by professional liability insurance?

Your professional liability insurance plan will not provide a financial benefit in the event of: 

• Property damage or bodily injury: Your policy will not pay out if a client suffers property damage or bodily injury while you’re doing business. For example, if a client’s data is permanently destroyed because of fire or a client suffers a bodily injury because of a fall in your office due to wet floor, professional liability insurance will not cover legal and settlement costs. 
• Criminal or fraud action: Your policy will not pay for a professional liability claim resulting from a crime committed by you or one of your employees. 
• Sexual harassment or wrong termination lawsuits filed by employees: These lawsuits are covered by employment practices liability insurance. 

How much professional liability insurance do you need?

The amount of professional liability insurance you need depends on several factors, including the nature of your work, the number of you have, your location, and more. 

Speaking with an insurance advisor can help you understand how much coverage you should carry. They can help determine the amount that is adequate to your business needs by understanding risks specific to your profession, number of employees, and other information. 

How much does professional liability insurance cost?

How much you will pay for liability insurance depends on several factors, including: 

• The nature of your work

Not all professions are equal. Some are at more risk of a professional liability lawsuit than others. Generally, jobs that include accusation of negligence or business errors are inherently riskier and consequently more expensive to insure. For example, as a chief architect, you are at a greater risk of making costly mistakes than, say, a content writer and as such will likely pay higher premiums. 

• The number of employees you have 

The professional liability insurance premiums for a consultant who works alone are going to be cheaper than a firm with 20 employees. 

• Where you operate

Your cost of professional liability insurance depends on your location because legal expenses vary between provinces. If you operate in a province where legal costs are high, it could bump up your coverage cost. 

• Your coverage limit

For a basic professional liability insurance plan with a coverage limit of $100,000, you could expect to pay somewhere in the range of $250 annually. Higher coverage limits or plans with additional benefits will naturally cost more. 

• Your claims history

The more claims you have against your name, the more expensive the coverage is going to be. For example, a tax consultant who has been sued for professional liability five times in the past 10 years will pay higher premiums than a professional with no claims. 

• Your work history

The number of years of experience you have in your industry impacts the cost of professional liability insurance premiums. For example, if you have been an estate planner for one-and-a-half decades with no claims, you can expect lower premiums than an independent civil engineer with two years of work experience. 

Conclusion

Professional liability insurance covers the cost of lawsuits resulting from actual or alleged negligence and unmet expectations. 

You should have this coverage if you provide advice or services for a fee. Speaking to a Dundas Life advisor can help you understand the amount of coverage you need. 

We will also help you compare quotes from different insurance providers in Canada so you can find the best value deal. 

FAQs

What is the difference between general liability insurance and professional liability insurance?

General liability insurance mainly covers the cost of physical incidents, such as injuries and physical damages. It also offers protection against copyright infringement, libel, and slander. Professional liability insurance, on the other hand, addresses incidents that usually involve financial damage instead of physical damage or physical injuries.

It protects you from claims alleging financial loss resulting from incorrect services or advice, omission of important information, or breach of a contract. ‍

How do I get a professional liability insurance policy in Canada?

Many Canadian insurers offer professional liability insurance designed to help professionals protect themselves against costly client lawsuits. However, selecting the right policy involves consider factors such as your profession, specific risks, deductibles, and coverage limits. An experienced Dundas Life insurance advisor can help you choose a policy that protects you against a broad variety of negligent acts and errors and omissions at an affordable price. 

Can I make changes to my professional liability insurance policy as my needs evolve?

Typically, business insurance plans are scalable. This means you can customize your professional liability insurance policy to your business and adjust it as your business grows and your risks evolve.