Differences Between Professional Liability and Commercial General Liability Coverage
May 17th, 2023
Upon receiving notice of a lawsuit involving a business, the first call a business owner makes will likely be to their attorney. The second call will probably go to their insurance broker to ask if the claim falls under professional liability, commercial general liability (CGL), or some other type of commercial insurance policy.
Businesses generally purchase several types of insurance policies in order to protect their businesses. Each policy is designed to protect against different risks that business owners face. Risks vary greatly depending on the type of industry and the nature of the business.
We will sort out the differences between the two most common types of liability insurance coverage – professional liability and CGL. We will also explain why it is important for businesses to purchase both.
Similarities Between Professional Liability and CGL
Professional liability and CGL coverages have many differences however, they have a few similarities too.
The similarities include:
- Both are types of liability insurance.
- Both policies protect against lawsuits.
- Either type of policy may be required as part of a contract with a third party.
- The cost depends on many factors, including the type of business, years in the business, location, prior claims experience, coverage limits, and more.
Furthermore will give you a breakdown of what professional liability and CGL policies cover in order to understand the differences between them.
What Professional Liability Insurance Covers
Professional liability is often called errors and omissions coverage (E&O). Much as it sounds, professional liability insurance protects professionals against lawsuits over allegations of mistakes.
Professionals that should carry professional liability insurance are:
- Consultants
- Accountants
- Tax-preparers
- IT professionals
- Home inspectors
- Architects
- Insurance agents
- Engineers
- Real estate agents
- Interior designers
- Advertising agencies
- Financial advisors
Professional liability insurance pays for losses if a client alleges one of the following:
- Mistakes
- Negligence
- Misrepresentation
- Libel or slander
Professional liability insurance pays for damages, legal defense costs, lost wages, disciplinary proceedings, and costs associated with obtaining subpoenas.
What are some types of situations that a professional liability policy would respond to? Let us say that an accounting firm made a critical bookkeeping error and did not catch it. The company was deemed to be negligent because it did not have a system to check its figures. The mistake ended up costing the client thousands of dollars, so they sued the accounting firm.
As another example, we will say that a website developer created landing pages for an e-commerce retailer but failed to link the products to the online shopping cart. The seller had spent a large amount of money on ads. Customers flocked to the site but were not able to put products into the shopping cart. The seller lost thousands in marketing fees and customer sales. The seller sued the website developer because of it.
A professional liability insurance policy would respond in both of these cases.
Business owners should not assume that professional liability insurance is part of their policy. It is not generally included in a business owners’ policy (BOP), but it can usually be added by endorsement for an additional premium. When in doubt, it is best to ask your insurance agent about it.
What Commercial General Liability Covers
A CGL policy is a comprehensive liability policy that covers damages or injuries on its premises or damages or injuries that were caused by the business or its employees.
Here are a few scenarios where a CGL policy would pay for a loss:
- A guest at the business falls on an icy sidewalk and breaks a leg. The CGL policy will pay for the person’s medical bills, court costs, and court-ordered judgments or settlements.
- An electrician improperly wires a house, and it catches on fire. The policy would pay to restore the house, pay medical bills if applicable, and pay any judgments or settlements.
- A marketer was guilty of copyright infringement in a company ad causing financial or reputational damage to the company that held the copyright. The CGL policy would pay for judgments or settlements and legal defense costs.
Nearly all businesses need CGL insurance as it is a comprehensive form of liability that protects against many risks. A CGL policy can be a standalone policy, or it can be a part of a BOP.
Business owners should be aware that CGL policies carry certain exclusions, and it is important to learn what is not covered by the policy. For example, while a CGL policy covers damages to anyone who gets hurt at the business, it does not cover employees who get hurt at the business. In the case of an employee injury, workers’ compensation would cover the medical bills and lost wages.
Why Your Business Needs Professional Liability and CGL Insurance
How often do liability claims happen? Insurance companies paid out $4.35 billion in claims in 2021.
Every business faces risks of various kinds and to varying degrees. Unfortunately, there is no way to predict if an accident will occur or if someone might feel they have been harmed by your company. A CGL policy is quite comprehensive and protects against many common business risks. No business should be without a CGL policy.
Depending on the type of business, a CGL policy and a professional liability policy may be the best way to protect your business.
How common are professional liability claims? In the legal field, statistics show that four out of five lawyers (80%) in Ontario are likely to be sued for malpractice at some point in their careers. Because of this high percentage, all law society programs in Canada require their members to purchase a professional liability insurance policy with limits of at least $1 million. The Law Society of Ontario requires its members to purchase professional liability insurance unless they work for the government or do pro bono work.
While doctors and lawyers are more prone to lawsuits against them, a business owner in any industry may be sued over alleged wrongdoing. For that reason, all businesses that give advice or guidance should purchase professional liability in addition to a CGL policy, whether the law or a trade association requires them to purchase it or not.
Final Thoughts
It is not only the larger companies that are at risk of being sued. Small businesses are at just as much risk of lawsuits as larger companies. A major lawsuit against a business owner that does not have the proper commercial insurance protection can cost business owners large sums of money. If a business owner is found guilty and does not have enough insurance to cover the settlement, it could even put them out of business.
A CGL insurance policy, along with a professional liability insurance policy, will protect your business from all angles. These policies are the insurance that gives you that much-needed peace of mind.
To learn more about CGL and professional liability for your business, contact one of our licensed commercial insurance agents to discuss the appropriate coverages to protect your business.
Call Duliban Insurance Brokers now at 855-DULIBAN.
