Do You Need Professional Liability?

Professional liability insurance protects you financially when clients claim your work caused them financial harm. Think of it as your financial safety net that works in three ways:

• Covers your legal bills when clients sue you for mistakes
• Pays what you owe if a court rules against you
• Helps protect your business and personal assets by covering legal costs and court judgments, though protection depends on your policy limits and coverage terms

Professional liability uses 'claims-made' coverage, which means you're protected when someone files a lawsuit against you, not when you made the mistake. This timing matters because clients might sue you years after you complete their work.

Your policy includes a retroactive date, too. Work you performed before that date won't be covered, even if the lawsuit gets filed while your policy is active.

Most health care professionals need professional liability insurance, though legal requirements vary by state. Some states legally require doctors to carry malpractice insurance. Colorado requires physicians to keep coverage with minimum limits of $1 million per incident and $3 million annually, while Massachusetts and Connecticut also mandate coverage for licensed physicians providing direct patient care.

Even without legal requirements, hospitals typically require physicians to have coverage before granting admitting privileges. Without professional liability insurance, you're personally liable for legal defense costs and settlements, which can easily reach substantial amounts.

Most attorneys don't face legal requirements for professional liability insurance. Currently, only Oregon and Idaho mandate coverage for private practice lawyers. However, many states require disclosure if you don't have insurance, potentially affecting client confidence.

The reality is that even without legal requirements, malpractice lawsuits are expensive to defend. You could pay a substantial amount if you lose. Also, most established firms and corporate clients expect you to have coverage before they'll work with you.

Financial professionals, such as financial advisors, tax preparers and certified public accountants (CPAs), are generally not legally required to carry professional liability insurance. However, Oregon requires state-licensed investment advisers to maintain $1 million in errors and omissions (E&O) coverage, and many brokerage firms require advisors to have coverage before they'll work with them.

A single mistake on a tax return or bad investment advice can trigger expensive lawsuits. You'll be responsible for both legal fees and damages without insurance protection.

Rhode Island requires all resident insurance producers to carry and maintain E&O insurance with minimum limits of $250,000 per claim and $500,000 annual aggregate as a condition for getting and keeping their license. Other states generally don't have this legal requirement for insurance agents.

Even where coverage isn't legally required, professional liability claims against agents are common. A single client lawsuit over missed coverage renewals, policy gaps or incorrect advice can result in tens of thousands in legal defense costs and potential settlements that you're personally liable for without insurance protection.

Architects and engineers design buildings and infrastructure, subjecting them to similar professional liability risks and requirements. Ohio requires its architects and engineers providing professional design services to government agencies to have and maintain professional liability insurance during the period services are provided. Most states, like Texas, don't legally require coverage for these professionals.

Even where coverage isn't legally required, it's smart to have it. Design errors can result in construction defects, structural failures or project delays that trigger lawsuits seeking hundreds of thousands in damages. You'll also have to cover legal defense costs out of pocket if you don't have insurance.

IT consultants face unique professional liability risks that general liability insurance won't cover. Technology errors and omissions claims include unauthorized access to private information, intellectual property infringement and system security failures that harm systems and make systems unavailable to users. A cybersecurity incident can lead to lawsuits seeking millions in damages.

Most states don't legally require IT consultants to carry professional liability insurance. However, if you work for government agencies like Sonoma County in California, you'll need professional liability coverage to get contracts. Many private clients also require proof of coverage before working with you, and you'll face expensive legal defense costs without insurance.

The Federal Acquisition Regulation (FAR) requires general liability, commercial auto liability and workers' compensation, but doesn't standardize professional liability across all federal contracts. Each agency and contract sets its own additional insurance requirements beyond FAR minimums.

Professional services contracts, like engineering, architecture or consulting, typically include professional liability requirements with coverage amounts set by the contracting officer. Check specific requirements with your contracting officer since each federal contract has unique insurance provisions based on project scope and risk.

While most states don't legally require professional liability insurance, high-risk professionals like doctors, attorneys and financial advisors should carry it due to costly lawsuit exposure. Beyond professional liability, you'll also need general liability, cyber coverage, workers' compensation and tail insurance for complete protection.

We've answered the most frequently asked questions about professional liability requirements to help you determine if you need coverage: