General Liability Vs. Professional Liability Insurance

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What is the difference between general liability and professional liability?

General liability and professional liability may seem similar at the surface level, but cover very different types of liabilities. The easiest way I think we can illustrate the difference is to first discuss each and what they cover.

General Liability Insurance –

A general liability policy will cover your business against claims of bodily injury and/or property damage. For example, a client walks into your office and trips on an extension cord in the hallway. They fall and get hurt, and sue your business for medical costs and/or lost wages. A business general liability insurance policy is designed to cover that type of peril.

Another example of how a general liability policy will protect your business is property damage protection. Let's say you're a contractor and your ladder slips and falls, causing damage to your client's siding as the ladder falls. A contractor's general business liability policy will cover the damage (subject to any deductible that may apply). If the ladder falls on a brand new car and scratches the paint, a general liability policy will cover the cost of repainting (again, subject to deductibles) the vehicle.

It should be noted that general liability (and professional liability) covers legal expenses (up to the insurance policy limit). The ability to shift the risk of legal expenses should not be underestimated. If you've been in business long enough, you have most likely run into clients that are "hard to please" and ready to sue at the drop of a hat. A business with general liability insurance that covers the type of claim at hand will also cover the legal expenses in defending the lawsuit. For many businesses, especially ones that take great care in making sure they don't cause problems, the ability to transfer legal expense risk is the most important attribute of their business insurance policy.

Professional Liability Insurance – 

A professional liability insurance policy will cover your business and/or your actions (or lack of) that cause another to experience an economic hardship (lose money). The most common cause of action is negligence, the failure to perform or not perform up to the expected standards of your profession. Businesses and/or people that provide professional services include doctors, lawyers, accountants, financial advisors, event planners etc. and their advice impacts the financial well-being of others. 

Because the standard of care expected for professional services is often highly subjective, it should be obvious that the risk of a lawsuit coming from "nowhere" is much more likely. While you can more likely expect a lawsuit if you're a roofing contractor and fail to cover a roof before a rain storm, a financial advisor may believe he/she provided great service to a client, but if the client doesn't agree, they may sue.

For example, the stock market drops 5% in a year, but the financial advisor places a client's account with stocks that only drop 3%. In the financial advisor's mind, s/he beat the market and is performing great, but the client becomes upset because the account fell 3% when they could have been in cash and stayed even. In other words, you don't have to actually do anything wrong in your mind to get sued for failing to meet the expected professional standards expected by your client.

In some cases, no one knows for sure if a reasonable level of service was provided. A lawyer may have an emotional client that isn't going to be happy absent receiving everything they want, regardless of the situation. 

As mentioned earlier with general liability insurance, a professional liability insurance policy provides legal defense. For many businesses, especially those that work with emotional clients (think funeral or wedding services), or subjective results (think lawyers, doctors, and financial planners), it doesn't matter how great your service is, all it takes is one unreasonable client searching for the slightest thing to claim a fault. And we all know those people are out there.

To recap, think of general liability insurance covering injury and property damage, while professional liability covers economic related losses due to advice and/or service.

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