Essential Differences Between General Liability and Professional Liability Insurance

If you are thinking about launching a small business or engaging in a profession, your first endeavor is to determine what types of insurance you will need. Two primary types of coverage that may be needed in your situation are general liability insurance and professional liability insurance. Making an educated determination as to what type or types of coverage you may require necessitates an understanding of these two types of liability insurance policies.

Basic Coverage Provided by General Liability Insurance

General liability insurance is coverage designed to protect a business against certain types of claims made by third parties. There are a trio of essential areas covered under a general liability policy.

First, a general liability insurance policy covers claims made for bodily injuries sustained by a patron at your business. The classic illustration of this type of coverage is a situation in which a person slips and falls on spilled liquid at a business. A business is legally responsible for maintaining its premises or property in a reasonably safe condition. The standard is that a business must take the same steps a similarly situated enterprise would undertake to maintain a safe environment. A business doesn’t need to keep its premises completely safe, only reasonably safe.

Second, a general liability insurance policy covers damages made by a business to the property of another. For example, if an employee of a business is making deliveries and ends up rear-ending another motorist, the business is responsible for the damages caused to the other vehicle.

Third and finally, general liability insurance also covers an array of other claims that are made against businesses with some degree of regularity:

• libel
• slander
• misappropriation of intellectual property
• trademark infringement
• copyright infringement
• patent infringement

Basic Coverage Provided by Professional Liability Insurance

Professional liability insurance is also known by a number of other names:

• errors and omissions (E&O) insurance
• malpractice insurance

Professional liability insurance typically provides coverage in four general situations.

First, this type of insurance provides compensation in a situation in which professional services were provided in a negligent manner. The best known of this type of case involves medical malpractice as well as legal malpractice.

Second, professional liability insurance provides compensation to an injured party arising out a failure to uphold the provision of an agreement or broker contractual promises. For example, if an architect entered into a contract to design a building for a developer and failed to do so, professional liability insurance may cover a claim for the contract breach made by the developer.

Third, professional liability insurance provides coverage for claims arising out of incomplete or substandard work. For example, if a plumbing subcontractor doesn’t finish the installation of a sewage system at a project, uses substandard materials, or engages in substandard work, an E&O insurance policy likely would cover such a claim.

Fourth and finally, a typical professional liability insurance policy is designed to provide coverage or compensation for other types of mistakes or omissions. If an accountant is engaged to file a timely tax return for a client and fails to do so, this omission would likely be covered by a professional liability insurance policy.

Type of Insurance Needed

A business or professional is wise to consult with a skilled, experienced, knowledgeable commercial insurance broker or agent to determine what types of insurance are needed for a particular endeavor. A business or professional nearly always needs to maintain a general liability insurance policy. (It’s difficult to imagine a scenario in which a business or professional wouldn’t need general liability insurance coverage). This is the case even when a business or professional is operating exclusively online.

Not all businesses need to maintain professional liability insurance. For example, a retailer typically has no need for such coverage. One exception is if a retailer is involved in designing and creating some type of customized product.

The reality is that many professionals are required to maintain professional liability insurance. If they fail to do so, they face the prospect of having their professional licenses suspended.

A commercial insurance agent or broker can assist a business or professional in finding the most suitable types of insurance coverage. Often, a business or professional can save money on the overall costs of different insurance policies when they are obtained as part of a comprehensive package of coverage.

A business or professional must always bear in mind that the failure to maintain necessary general liability or professional liability coverage can be costly. In the absence of insurance, the assets of a business or professional must be used to satisfy a successful lawsuit pursued by an injured third party.