Most people know the common risks associated with running a business that cause them to need business insurance. The general liability insurance that most states require only covers bodily injury and property damage, to avoid lawsuits if a customer or associate is hurt or has their property damaged at your business. Worker’s compensation, which is also a requirement, covers the same for employees. There are extra kinds of insurance that protect you from floods, fires, and damage to your product, among other things. But what’s the most likely thing to go wrong at your company? It’s not natural disasters or even injuries. It’s a court case. More than half of all lawsuits affect businesses making under $1 million, and most of them have nothing to do with injury. The cost of defending yourself can severely cripple your business, forcing you to raise prices and cut back on hiring as well as damaging your credibility. That’s why you need professional liability insurance.
1. What does Professional Liability Cover?
Your professional liability insurance can cover a myriad of things, but the most common are malpractice suits, claims of negligence, inaccurate advice, misrepresentation, or alleged breaches of good faith. Basically, if your product or service doesn’t do what the customer expected it to, or they have any reason to believe you were lying, they can file a lawsuit. Professional liability can also cover lawsuits made by employees for issues unrelated to personal injury. Sexual harassment, wrongful termination, or allegations of an unsafe work environment are all potential grounds for court cases. Your insurance policy covers the cost of your defense, whether or not you win or lose, and they can cover the cost of damages if you lose.
2. Shopping for Professional Liability
The first step in selecting professional liability coverage is to research your type of business and what kind of lawsuits you are vulnerable to. A real estate agent has very different needs from an auto mechanic, and if you can find an insurance company that specializes in your field, you will be more likely to get the right kind of coverage. You only want to work with insurance companies who have been in business for at least a decade, and you want to gather several quotes so you can compare value and see what kind of policy fits into your budget. Many small business owners use financial advisers or accountants to help them with this decision, or they consult business colleagues for recommendations and referrals.
3. How to Avoid Claims
Lawsuits are so prevalent in this day and age that there’s no denying even the most professional and well-prepared business can get sued. But there are plenty of things you can do to avoid lawsuits against your company. Providing strong customer service is one of the most important. If a customer has a complaint, do everything you can to resolve the issue. Provide free replacements or money-back guarantees if you’re worried that your product or service might not work for some clients – the cost of doing that is far less than the cost of a lawsuit. Be knowledgeable about areas related to your business or else don’t speak on them, and keep up with new developments in your industry so you aren’t giving customers the wrong advice. Also, avoid suing a client for missing fees or any money owed, because they usually respond by suing you for negligence or malpractice.
4. Other Facts About Professional Liability
Professional liability policies usually come in two categories – Claims-Made and Occurrence. Claims-Made only covers claims that happen while the policy is in effect. That means if you cancel your policy and two weeks later, someone files a lawsuit against you for an event that happened while you were covered, you still won’t have insurance. An Occurrence policy provides coverage for all events that happen while the policy is in effect, so your claim would be valid even with a canceled policy. A typical policy will give you a financial limit for each claim and a limit on the number of claims you can file in a single year. Your company should keep thorough records of everything, because you will probably need to provide the insurance company with the details of an event, as well as contact information for all witnesses.
Most insurance policies cover you for accidents and occurrences that are not the norm. But lawsuits are actually becoming the norm in the world of business, and the statistics are surprising. Your company should act now to make sure it is doing everything possible to prevent possible court cases, but you also need a good professional liability policy for those times when the odds are against you. You’re taking risks in order to be successful, so it never hurts to be prepared.