Thursday, November 12, 2009

General Liability is Not Enough

It happened without warning …
Everything went smoothly with the release of your latest software upgrade. Or so you thought. Soon after, customers complain that their computers crash when they install your product. To make matters worse, they sue your company for hundreds of thousands of dollars. The damage to your company’s reputation is bad enough. But your product liability insurance does not cover losses arising from faulty software or programming. How will you pay attorneys fees and damages to your customers?
(Hartford Brochure 2009: A Hands-On Approach to Insuring Innovation)

I never make mistakes...
An accountant audited financial statements which were relied upon by the creditors of 3 plumbing companies. The creditors lent $65,000,000 to the Insured’s client. The plumbing companies defaulted on the loans and fled for bankruptcy. The accountant’s audit procedures did not comply with GAAP. Cost to defendant: $4,175,000
(Philadelphia Brochure 2009: Claim Scenarios, Accountants Professional Liability)

Is General Liability enough?

The answer to that question depends on what business you are in and the services you provide.

Questions you should be asking yourself:
  • Do I offer a professional service?
  • Am I giving advice in addition to selling a service or product?
  • Am I doing any designing?
  • Could a glitch or error in my services cause my client a loss?

If you answered yes to one or more of these questions, then you need to look into Professional Liability or Errors and Omissions insurance. General Liability policies have an exclusion for professional services meaning that if someone sues you for something you advised them to do, then you are on the hook for legal fees, settlements, and protecting your good name.

Examples of people that need Professional Liability:

  • Doctors & Lawyers
  • Consultants & Inspectors
  • Web developers, software engineers
  • Technology Consultants
  • Insurance Agents
  • Real Estate Agents
  • Accountants, CPAs, Bookkeepers
  • Engineers, architects, landscape designers

Ways to protect yourself:

  • Have your contracts with clients reviewed by your attorney
  • Back up all data on a redundant server
  • Purchase a Professional Liability policy for your service

Things to look for in a Professional Liability policy:

  • Is defense inside or outside the limits? Often times legal fees can eat up most of the limits and you may not have enough money left in the policy if there is a settlement. When defense is outside the limits, you will have your entire limit to pay a settlement.
  • Does your policy exclude bodily injury? Some policies will exclude claims if someone gets hurt from something you advised. Example: An tree consultant may say a tree is healthy, then it falls on someone.
  • More exclusions. Make sure you are reading the small print and you address your concerns before binding the policy. Companies may change the wording in a policy if it means attaining your business.

Talk to your agent to see if you are covered correctly.

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