Malpractice insurance isn't just for doctors anymore

By Mye-Yun Lee

When the average business owner thinks of malpractice insurance, the likely scenarios that come to mind are those involving Dr. Negligent. But these days, it's not just those in the medical field who need to be concerned with protecting themselves from claims related to performance. A computer consultant or a financial planner can be sued just as easily.

Although your company probably has standard business insurance, it's unlikely to be sufficient if you're in a service business. Usually, businessowner policies only cover liability issues related to property loss or malfunctioning product. Claims regarding your company's failure to provide an adequate level of professional service are handled by errors and omissions (E&O) insurance.

Unfortunately, these days, it's not simply enough to deliver an outstanding level of service. Dissatisfied clients can still sue you if they believe they are in the right. And even if their claim has no validity, you're likely to still be responsible for any legal defense costs. E&O (also known as professional or malpractice) insurance protects against the heavy toll legal costs can take on your company's financial health.

When shopping E&O policies, pay special attention to the fine print before you sign. Since there is no standard form, the terms of the policy can dramatically differ from insurer to insurer. In particular, check for what is covered or not covered. You don't want to find yourself fighting the insurer for coverage should a claim arise. Any broker worth his or her salt should have no problem giving you a copy of the contract to review.

Also check to see who is covered. Some policies will cover employees only while others will also cover subcontractors. If your business uses subcontractors routinely, you should look for the more broad coverage. Otherwise, you will need to check that your subcontractors have their own professional liability insurance.

Annual premiums for errors and omissions insurance can run between $1000 to $15,000, depending on the size and revenues of your business and the risk assessed. While these rates can seem high, it's not much when compared to the $100 thousand some doctors have to fork over every year.

Although you may be tempted to sign up for a plan with the lowest rates, don't do so blindly. Often, the types of incidents these plans cover will be much less broad than those covered by more costly policies. A better way to keep your premiums low is to sign up for a higher deductible that your company can comfortably pay-a $2,500 to $5,000 deductible is often recommended.

Since professional insurance is not as straightforward as life insurance, you'll want to work with a broker who specializes in it. This broker should be able to guide you to insurers that prefer to write coverage for companies in your industry and point out some of the pros and cons of the various providers. Though many more companies offer it these days, they are still pretty limited in number.

An irate client can be your worst nightmare. Think of E&O insurance as your company's safety net.

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