Does My Professional Liability Insurance Cover Contractual Liability?

Working in a professional field, you face litigation risk and liability claims from dissatisfied clients and even competitors. It’s worth noting that litigation risk varies from one profession to another. For example, in the medical field, physicians are most likely to be sued, whereas psychiatrists have the lowest lawsuit risk, with only about 2.6% facing claims. Either way, you should carry professional liability insurance if you provide professional services. Here’s a detailed primer on professional liability insurance in NC and whether or not it covers contractual liability.

Professional Liability Insurance North Carolina – What Is Contractual Liability Insurance?

This insurance policy protects the policyholders against liabilities assumed while entering a contract. It shields the policyholder from the financial losses associated with assumed liabilities and holds the client harmless during the contract period. This coverage is important because some clients require it before signing a contract with a business.

Understanding Contractual Liability Insurance

As the name implies, contractual liability insurance is a policy that takes effect in unilateral contracts. In such contracts, the contractor assumes the risks associated with the operations, holding the other party harmless. For instance, in construction, the contractor can accept liability for any third party that gets injured or property that gets damaged at their construction site.

This means that if the construction operations directly cause bodily injury or property damage to third parties, it’s the contractor’s responsibility to pay for medical expenses, repair and replacement costs, compensation, and legal costs for any resulting lawsuits, not the client. The contractor further transfers the risk to the insurance company through contractual liability insurance.

What’s Professional Liability Insurance?

This policy aims to protect service-oriented businesses such as law firms, consultancy businesses, and healthcare practices from liability claims that emanate from their negligence or other professional mistakes. It’s also referred to as an errors and omissions policy or medical malpractice insurance, depending on the type of profession.

How Does Professional Liability Insurance Typically Works

The American Bar Association (ABA) estimates that a staggering 80% of attorneys will be sued for malpractice at some point in their careers. Solo attorneys are more susceptible to such kinds of lawsuits. The good news is that professional liability insurance (PLI) is a specialty insurance policy that covers such professionals, including others like doctors and design professionals, from financial losses associated with liability claims. It covers issues such as malpractice, negligence, errors and omissions, and copyright infringement, among others. For instance, if some patients suffer an adverse reaction from a drug you prescribed, they may sue you for medical malpractice and possibly cause you to lose your professional license. While this policy only provides coverage for claims filed during the policy period, the insurer may include a retroactive date to enable coverage for errors that occurred before policy inception.

What’s the Contractual Liability Exclusion That’s Common to Professional Liability Policies?

If you’re a professional entering into a contract, some clients may require you to have contractual liability insurance as part of your professional liability insurance. This is particularly common for design professionals. Professional liability insurance only offers limited coverage for contractual liability. Usually, the insurance company will exclude any risk that the policyholder wouldn’t have been liable for in the absence of a contract. Such things include intentional acts, client’s defense costs, and criminal prosecution.

To have an in-depth discussion about your business liability insurance options, contact the experts at Pittman Insurance Group right away. We’re happy to look into and tackle all your specific commercial insurance needs.

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