In today’s tumultuous business climate, companies need the best insurance solutions to fit their complex business needs. Two popular options, general liability and professional liability, provide businesses with different protections from inherent business risks. Each option features specific coverages that protect businesses from unique claims scenarios. What are the differences between general liability vs professional liability insurance?
What is general liability insurance?
General liability insurance is a third-party coverage that covers bodily injury and property damage resulting from a business’s products, services or operations. One of the benefits of general liability coverage is that it is comprehensive, meaning the policy covers all hazards within the scope of the insuring agreement not otherwise excluded.
Investopedia states that commercial general liability policies provide coverage for damage or injury stemming from the following:
- Operations: Operations liability covers a business’s liability for bodily injury or property damages that occur from operations and may include completed operations.
- Products: Products liability covers bodily injury or property damage arising out of goods or products that a business manufactures, sells, handles or distributes.
- Premises: Premises liability covers third party injury or property damage that occurs on the premises.
A commercial general liability policy is an effective business insurance solution that covers a wide range of exposures incurred by a business.
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What is professional liability insurance?
Professional liability insurance is a type of liability coverage that protects professionals from errors and omissions that result from their services. According to the International Risk Management Institute (IRMI), professional liability coverage seeks to indemnify, or “make whole,” third parties who suffer economic or financial loss as a result of services provided by accountants, attorneys, consultants, brokers and other professionals.
Unlike general liability insurance, professional liability does not typically cover third-party bodily injury or property damages. This is because these claims are typically covered under a commercial general liability policy.
Another factor to keep in mind with professional liability coverage is that it commonly contains “shrinking limits.” This means that unlike a general liability policy, an insurer’s payment of defense costs will reduce the available limits of insurance. This is an important factor for businesses to consider, as defense costs are normally a significant proportion of a claim settlement; therefore, an owner may want to request higher policy limits for professional liability.
Which option is best for my business?
Both general liability and professional liability insurance offer small businesses unique coverage solutions tailored for complex risks. Generally speaking, the best option for your small business depends on your specific business needs. Also, it is not an either/or situation. Your business may need both coverage types.
Many small businesses choose to secure commercial general liability coverage as part of a business owner’s policy. This bundled policy can give business owners the benefits of general liability insurance as well as other coverage options to fit the specific needs of the business.
Conversely, professional liability insurance is generally reserved for specific business types that provide a service. These businesses include the following:
- Consultants
- Accountants
- Brokers or agents
- Engineers
- Architects
- And others
Professional liability insurance is built to protect businesses from client lawsuits. Specifically, a policy helps cover the cost of lawyer and court fees, which constitute a significant portion of a claim. This solution is an important component of protecting the legal and financial reputation of a professional service firm.
Now that we understand the benefits of general liability and professional liability, let’s look at some examples of a general liability policy and a professional liability policy in action.
General Liability Claim Scenarios
A common claim scenario for a general liability policy is when a third party incurs a bodily injury on the insured’s premises. If the premises of the insured’s business were found to be the cause of the injury, the insured would be responsible for indemnifying the third-party claimant for the costs of the bodily injury. These costs may include medical expenses and loss of income while the claimant recovers.
Another common claim scenario for a general liability policy is when an employee of the insured damages the property of the third-party client. If the employee was found to have caused property damage to the client in the course of the insured’s business, the insured must indemnify the client for damage costs.
Although general liability coverage is comprehensive, there are some exclusions that take away coverage under a policy agreement. Some of the most common exclusions include contractual liability, liquor liability and auto liability. These scenarios either have coverage options elsewhere or are not covered under the insuring agreement.
Professional Liability Claim Scenarios
Professional liability claims commonly cover errors and omissions performed by the insured. According to the Insurance Information Institute, common claims that are covered under professional liability insurance, but not general liability insurance, include the following:
- Negligence
- Misrepresentation
- Violation of good faith and fair dealing
- Inaccurate advice
A common claim scenario is when an accountant underreports sales revenue for a client’s business. Citing an error on their balance sheet, the client sues the accountant for wrongdoing. A professional liability policy would cover the legal fees and court fees incurred up to the policy limits.
Another good example is when a contractor fails to complete work for a client as agreed upon in a contract. This breach of contract allows the client to sue the contractor for failure to uphold the provisions in the contract. A professional liability policy would cover the legal fees and court fees incurred up to the policy limits.
Are you taking the necessary steps to protect your business assets?
The current business environment has posed difficult decisions for millions of business owners. The merits of general liability vs professional liability insurance offer different, unique coverage solutions for your specific business needs. In order to discover which insurance solutions are best to protect your business assets, contact our commercial insurance coverage team to learn more.
