Many business owners purchase a general liability policy assuming that it covers all areas of liability. However, it only covers bodily injury and property damage with some personal injury coverage. Therefore, someone must be injured or someone’s property must be damaged before coverage applies. When a business causes a financial loss without any bodily injury or property damage, it will most likely be excluded from their general liability policy. We call these types of claims professional liability or errors and omissions liability.
When we discuss a company’s exposure to loss, we learn that most don’t know they have a professional liability exposure and they are shocked to learn it is not covered by their general liability policy. Many will say, “I don’t provide a professional service.” However, we have to look deeper into what the business does and the wording of the insurance policy. Some industries like law, accounting, and medical obviously have a professional liability exposure, but what about a plumber?
A plumber installing pipes into a new building can read plans wrong or install the wrong size pipes and no one catch it until after the building is complete. Once the error is discovered, even if the building hasn’t been damaged and no one has received bodily harm, a standard general liability policy would not pay for the cost to replace the piping nor any loss of revenue resulting from the lack of use of the building. These costs would come out of the pocket of the plumbing contract and can result in the business having to close their doors. However, a contractor’s errors and omissions liability policy is not that expensive and would protect the plumber from such a large potential claim.
This month’s case study has an employer with a professional liability exposure, but their exposure was greatly limited by confirming professional liability of their vendors. An insurance program is greater than the policies you purchase as everyone you do business with exposes you to a potential loss, and your insurance agent should help you determine the appropriate processes to put in place to help control those exposures to loss from a vendor, tenant, or even volunteer.
-W. Greg Whitlock, CIC, CRM, President