The purpose of buying liability insurance is to transfer the risk of a legal judgment or settlement from the individual to a stronger and more financially capable insurance company. Liability can be created by either acting in a negligent manner that causes damage to another party or it can be created by failing to act as would be normally be expected under a given set of circumstances.
If you drive a car, you must have a state-mandated minimum amount of liability insurance to protect other individuals in the event of an accident that was your fault. Liability insurance is part of most comprehensive homeowner’s insurance policies. Most people are quite familiar with the above-mentioned types of liability policies but may not be aware of another important type of coverage used widely by professionals.
Professional liability insurance provides coverage for individuals that perform professional services. There are a number of different industries where giving the wrong advice or making a mistake is very serious. While no one is going to sue a McDonald’s employee for forgetting to put the secret sauce on a Big Mac, they may very well sue a surgeon for bungling a simple operation.
Doctors are a classic example of a specific group that requires medical professional liability insurance. The risks of practicing medicine without this type of insurance are just too great. Certain specialties such as obstetrics and surgery are always susceptible to lawsuits filed by injured patients.
Attorneys, accountants and even stock brokers may need to purchase professional liability insurance to help transfer the risk of liability claims. An attorney might give bad legal advice or fail to file the proper paperwork on time that results in damage to their client. An accountant could create liability by acting outside the bounds of standard accounting practices while preparing a corporation’s annual report. Stock brokers have been sued in the past for churning accounts and putting clients in completely inappropriate investments.
While there is a certain amount of protection available through a general business liability policy, it is not always adequate to cover an individual professional’s personal liability risk. Policies can be expensive depending upon the degree of risk, but working without insurance coverage can be much more expensive.