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What is professional liability insurance in Canada?
Professional liability insurance is a type of commercial insurance that protects your business financially in the event of claims related to errors, omissions, or negligence in the services you provide. This can include legal defence costs, settlements, and judgments arising from client claims. Whether you're a consultant, healthcare provider, or any other professional, this insurance can help cover the expenses associated with defending your expertise and maintaining your reputation.
What does professional liability insurance cover?
What doesn't professional liability insurance cover?
Other terms for professional liability insurance
Professional liability insurance is often used interchangeably with other terms, such as errors and omissions (E&O) insurance, malpractice insurance, professional indemnity insurance, and professional responsibility insurance. It's important to note that different providers may have varying scopes of coverage under these titles, so be sure to double-check the specifics of your policy.
Who needs professional liability insurance?
If your business involves providing expert advice, professional services, or specialized skills, you should highly consider purchasing professional liability insurance – this includes industries where the risk of client claims due to errors, omissions, or negligence is significant. In some industries, such as law and accounting, it may even be a requirement. Here, we cover a few different professions that could benefit from a policy.
Consultants
Whether you're a business consultant, management consultant, or marketing consultant, offering expert advice and strategic planning can expose you to claims if a client feels your guidance led to financial loss.
Health providers
Doctors, dentists, and other healthcare professionals handle critical and sensitive medical care, making them vulnerable to malpractice claims from patients alleging negligence or errors in treatment.
Legal professionals
Lawyers and legal consultants are entrusted with significant responsibilities regarding legal advice and representation. Professional liability insurance protects against claims of errors, omissions, or breaches of duty.
Accountants
Accountants, auditors, and financial advisors provide crucial financial services and advice. Mistakes or perceived errors in financial reporting, tax preparation, or financial planning can lead to substantial client claims.
Architects & contractors
Architects, engineers, and construction managers design and oversee complex projects. Errors or omissions in planning, design, or project management can result in costly litigation if projects face issues or delays.
Real estate agents
Real estate professionals manage property transactions and client information. You may be at risk for claims related to misrepresentation, failure to disclose important information, or errors in contract handling.
Freelancers
Freelancers in various fields, such as writing, graphic design, photography, and web development, provide specialized services to clients. Errors, omissions, or dissatisfaction can lead to claims, making professional liability insurance essential for protection.
Fitness instructors
Fitness instructors and personal trainers guide clients through exercise routines and fitness plans. Injuries or perceived inadequacies in training can result in claims of negligence, which professional liability insurance can help cover.
Examples of professional liability insurance claims
To understand the value of professional liability insurance, it's helpful to look at a few specific examples of claims you could potentially face. Here, we outline three different professional incidents, along with how having the right insurance coverage in place can protect your business financially.
Missed deadline
An architect fails to meet a project deadline, causing the client to incur additional expenses and delays. The client files a claim for the financial losses, and professional liability insurance helps cover the legal defence costs and any awarded settlement.
Health misdiagnosis
A healthcare provider misdiagnoses a patient, leading to improper treatment and additional medical complications. The patient sues for medical malpractice, and the insurance policy covers the legal fees, settlement costs, and any awarded damages.
Financial error
An accountant makes an error in a client's financial statements, resulting in significant tax penalties and interest charges. The client sues for the financial damages incurred, and the insurance helps pay for the legal defence and any settlement required.
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How much does professional liability insurance cost?
The annual cost for professional liability insurance for small to medium-sized businesses typically ranges from $500 to $3,000. However, the exact cost varies for each business, as it depends on factors like the industry, size, and specific risks associated with your operations – higher risk levels usually mean higher premiums. To get an accurate quote, you'll need to shop the market with us.
Professional liability insurance can also be combined with other business insurance coverages – such as general liability insurance, business interruption insurance, director's and officer's insurance, and product liability insurance – into a single policy. Consulting a licensed commercial insurance broker can help ensure your insurance package is customized to your unique business needs.
Factors that impact your professional liability insurance quote
To better understand the quoting process, here are six different factors that impact the cost of your professional liability insurance. Generally speaking, the more risk your business brings, the more you'll need to pay to protect it.
Industry type
Businesses in industries considered high-risk for professional liability claims – such as healthcare, legal services, and financial consulting – may see higher insurance costs due to the nature of their services.
Business size & revenue
Larger businesses with higher revenues typically face higher premiums due to the greater potential for significant financial losses from a professional liability claim.
Claims history
If you've made professional liability claims in the past, this can increase the cost of your insurance coverage. Insurers may view it as a higher risk, leading to higher premiums.
Experience
Your experience and qualifications as a professional can impact your premium. Highly credentialed and experienced professionals may be viewed as lower risk, potentially leading to lower costs.
Service & employee scope
The range and complexity of services you provide can affect your premium. And the more employees you need to insure, the higher your insurance premium will be.
Coverage limits
The amount of coverage you choose will directly affect your premium. Higher coverage limits provide more protection – but this doesn't come without an added cost.
Tips to help avoid professional liability claims
Review contracts
Make sure each job you take comes with a contractual agreement outlining your deliverables clearly and in particular detail. Have a lawyer review any contracts before you sign them to check for missing information or required additions. The most iron-clad work contracts should give you a timeline for completion, limitations of liability, and a process of working out any potential complaints. You wouldn’t want to get sued for professional liability because you didn’t have a contract in place that outlined expectations for both you and your client.
Communicate clearly
Communicating clearly with your client is a good way to mitigate the risk of a professional liability claim – whether that means asking for feedback on a prototype or confirming project deadlines. You should always check in with their expectations at different stages in the process as you wouldn't want the final product to be unaligned with your client's vision.
Limit your workload
Limiting your workload doesn’t mean only focusing on one project at a time. It means you should be aware of what you or your business can handle and where your expertise lies. If you have three employees, don’t overburden them with excess work by scaling up with more clients. Trust with employees takes time to learn but can dissipate without due process and care.
Double-check everything
Double-checking your work is a simple, yet often disregarded, method that ensures your work is quality and comprehensive. If you accidentally leave a typo on a flyer you designed, reprinting the entire batch could cost your client (and possibly you) thousands. And an overlooked but simple bug fix could cost a technology company millions if left unattended. Small mistakes can lead to big claims.
Follow best practices
It’s important to follow any laws and regulations in your industry to uphold the best standard of work possible and prevent any professional liability claims. For instance, if you’re a CPA preparing financial documents for your client’s business, be sure to follow the CPA Accounting Handbook regulations. Rules are put in place to protect both you and your clients. No party wants one wrong move to require lawyers and lawsuits.
Frequently asked professional liability insurance questions
What’s the difference between professional liability insurance and general liability insurance?
Although both professional liability and general liability insurance provide coverage for legal fees and compensatory damages, the two types of insurance cover a separate set of risks. Professional liability provides protection for claims of errors and omissions from your services while general liability provides protection for claims of bodily injury and property damage.
If you’re a personal trainer, and you push your client to try a skill that ends up resulting in an injury, the legal fees and damages can be covered with professional liability insurance. However, if a client injures themselves after tripping on a piece of equipment, general liability insurance would offer protection instead because your services didn’t do any harm.
What’s the difference between professional liability insurance and errors and omissions insurance?
Professional liability insurance is also often referred to as errors and omissions insurance, so both policies are generally the same. Some insurance companies may use different names interchangeably – it’s a good idea to ask your insurance broker about the specific coverages that come with your package.
Is professional liability the same as professional indemnity?
In Canada, professional liability insurance may be used interchangeably with professional indemnity insurance. While the protections on both policies should be the same, each insurer is different, so it’s always a good idea to consult with a broker about the exact coverages you’ll receive.
When is professional liability insurance required?
Generally, professional liability insurance is not mandatory unless you work in a field that legally requires it, such as law or real estate. However, it’s highly recommended for professionals that offer services, provide advice, or develop products for clients as you wouldn’t want a claim to cause a financial burden or shut down your practice. Clients may also ask you to purchase a professional liability insurance policy to limit any risks.
How much professional insurance do I need?
The amount of professional liability coverage you opt for depends on the risk factors you face in your day-to-day operations with clients. Most businesses have at least $1 million in liability coverage while large businesses could have over $10 million for protection. If you teach one dance class a week, you probably wouldn’t need to purchase the same amount of coverage as a management consulting firm dealing with immense financial risks.
How do I get professional liability insurance in Canada?
After providing us with a few details in our online quote comparison, we’ll connect you with a licensed commercial insurance broker in Canada to guide you through the process of purchasing the professional coverage you need.
How can I get lower the cost of my professional liability insurance?
Lowering the cost of your professional liability insurance can be achieved through several strategies. First, maintaining a clean claims history is crucial, as it demonstrates to insurers that you are a lower risk. Additionally, improving your professional qualifications and implementing strong risk management practices can further reduce your risk profile. Another effective approach is to consider increasing your deductible, which can lead to lower premiums. Last but not least, you can also consider bundling the coverage with other types of business insurance for a discount.
Matt Hands, Business Director of Insurance
With 6+ years of experience at Ratehub.ca, Matt’s focus has been on growing its newest business unit, Insurance. He is a thought leader and a valuable resource to respected publications across Canada. read full bio
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