Meanings of Professional Liability Insurance
“Wherever there is planing, there are shavings,” the saying goes. But anyone who hurts their customers or causes them financial damage has to pay for it. Unless he has professional indemnity insurance to take care of that .
What is professional liability insurance?
According to ACRONYMMONSTER.COM, professional liability insurance is the counterpart to personal liability insurance and takes over the damage that a business person or freelancer causes a customer in the course of his activity.
For example, if a customer trips on a wet floor or a loose carpet and breaks his leg while visiting the shop or office. Some cases of damage can result in compensation payments that are so high that you, as an entrepreneur, would have to file for bankruptcy.
A good professional liability insurance will help you in these cases. It first checks the legality of the claims for damages and rejects them if they are not justified. This part is also called passive legal protection. If the customer actually has a legitimate claim, the insurance will cover the necessary costs.
In the following article you will also find out more about whether you need such insurance by law or should take out voluntarily and what damage you can cover with it.
Who Needs Professional Liability Insurance?
A distinction must be made between two groups of people: those who are legally obliged to take out such insurance and those who should absolutely have one for safety reasons so that they do not go bankrupt in the event of damage.
There is a legal requirement for insurance, for example, for lawyers (§ 51 BRAO (Federal Lawyers’ Ordinance), insurance brokers and real estate loan brokers (§34d and §34i Trade Regulations). In addition to the statutory provision, there are also requirements of the professional association for certain professional groups that must be able to provide such insurance The group of executives or employees in important organizational functions as well as freelancers are also very important.
Affected groups are, for example, architects and engineers, doctors, pharmacists, financial investment brokers, tax consultants, auditors and notaries.
Professional liability insurance for doctors
Such insurance is very important for doctors, because they have a particularly high risk in their work. Patients could even die in the process. Doctors must take out professional liability insurance according to the requirements of the State Medical Association. In addition, we recommend that you take out property damage liability insurance.
Professional liability insurance for employees
Employed doctors are liable with their private assets if the patient is harmed during treatment. In the case of employed doctors, however, liability is usually regulated by the employer’s insurance company. Before you take out your own insurance as an employed doctor, you should first check to what extent the insurance of your boss or the clinic is liable for your damage.
It is also important whether gross negligence is also insured and whether the employer can assert a claim for recourse. To what extent are external activities also insured? A doctor who advises a friend in his spare time can inadvertently cause damage. Because there are so many points to consider, it is imperative to examine this closely.
Financial loss in advisory professions
The financial loss is to be seen separately from the professional liability. It is to be covered by a financial loss liability insurance. This is particularly important in advisory professions such as lawyers or tax consultants. But also notaries, corporate or financial consultants.
Property damage liability insurance is even required for this group. If the customer or client suffers damage due to incorrect advice or if the tax advisor submits the documents to the tax office too late, the insurance company will reimburse the damage and handle the entire case.
Professional liability insurance for all freelancers and self-employed
In addition to the groups that have to make a mandatory commitment, there are also professions for which it is advisable to have insurance . Whenever the risk is so high that damage could endanger your existence, you should take out such insurance.
These professional groups are, for example, trustees, interpreters, translators, journalists, IT experts, real estate agents, all groups of people who have anything to do with social media, websites, blogs, internet portals or apps, online shop operators and all consultants.
Are you self-employed and want to know which insurance you need in each case? Find out more about the topic in our article 4 insurances that every self-employed person must have!
Professional liability insurance for employees
Ordinary employees are like the salaried doctors mentioned above. Normally the company or the employer is liable for the damage caused. All employees without special functions are insured through the company and do not need their own insurance.
Exceptions
No rule without exception. Anyone who holds an employee position in which they perform special functions, i.e. managerial functions such as board member or manager, but also managing director or member of the supervisory board and also as an authorized signatory , should take out professional liability insurance. Because they can be held directly liable and have to pay for the damage.
Follow-up liability insurance
This insurance is particularly important for some occupational groups, because it ensures that your insurance company also covers a mistake that occurs later.
Follow-up liability insurance for doctors
According to § 195 BGB, the normal limitation period is 3 years . But if you as a doctor have forgotten surgical accessories or bandages in a patient’s stomach and he only notices it after 3 years and a day, then this damage can of course still be repaired. The limitation period therefore only begins as soon as the patient has discovered the error.
Most insurance companies already take this problem into account and have included a five-year supplementary liability insurance in the contract. Even a retired doctor is not immune to such problems, so he should definitely have extended liability insurance that also fully includes retirement.
In addition, it could also be the case here that a doctor advises a colleague even in retirement or rushes to help in the event of an accident and causes damage on the occasion. Without insurance, he would be liable for it with his private assets!
Examples of extended liability as an architect
Architects are, in a way, just as vulnerable as doctors. Because the liability risk has increased due to a change in the law. Architects are liable for all planning errors and construction defects. This can happen in retrospect with some building planning and building regulations errors, especially in building projects that do not require approval and that no longer require official inspection. Such damage can run into the millions and only come to light years later.
A popular example are poorly secured construction sites with personal injury if someone falls. If this person is then possibly paralyzed, high pension and care costs are incurred. In addition, there is moisture damage in the event of poor sealing or delay damage.
Differences between professional liability – public liability – property liability
Usually the term is used colloquially synonymously. It is also difficult to differentiate, as insurance companies often cover both together. However, professional liability in the narrower sense usually covers property damage and personal injury and outsources the financial damage to financial loss liability.
Apart from that, professional liability is about damage to a professional group and public liability for the company.