Are You Covered by Professional Liability Insurance when Hiring a Contractor or Third Party?
As a business leader, you are probably keenly aware of the need for adequate liability insurance cover, which keeps you and your employees protected and staves off the concerns of something going horrendously wrong in your everyday operations.
But what happens when you hire a contractor or a third party to complete part of your project? Maybe you are a building firm that uses electricians, plumbers, and the like to complete a construction. What happens if something goes wrong, and they cost you or your clients financially or damage stock/equipment?
Insurance is a frustrating payment to make, but avoiding business risks that could hurt you further down the line is a no brainer.
Nobody sets out to make mistakes, but the truth is that these things happen, and you must protect yourself from the worst-case scenario. If you don’t, you could be harmed financially – and that could be disastrous for your business.
As such, it is highly likely recommended that you take out an appropriate professional liability insurance policy.
What is Professional Liability Insurance?
When you learn that professional liability insurance is also sometimes known as Errors & Omissions (E&O), you get a flavor of what it is all about.
Ultimately, this insurance protects your business against a civil lawsuit or a negligence claim as a result of your activities. This is specifically related to professional mistakes, so even where you have the best intentions – and something, unfortunately, goes wrong – you are protected against a legal action that might otherwise bankrupt your company.
Examples where this is crucial range from a hairdresser accidentally scorching a client’s hair with the straighteners, right through to an electrician accidentally wiring a plug in the wrong way.
Clearly, in construction, lives and property are on the line, and so anyone in this industry really ought to have professional liability insurance in place.
Remember, there may even be occasions where a legal case is brought against you, but you’re actually in the right. Unfortunately, there are exorbitant fees to pay to prove your innocence of the mistake in question, and appropriate liability insurance will help you pay the costs and get back to business as quickly as possible.
Many insurers offer tailored quotes and protection specific to your industry. Whether you are in construction, I.T., the legal and accounting professions, personal services, or any other sector, you can already see why professional liability insurance is essential to your company’s wellbeing.
Isn’t General Liability Insurance enough?
The definition of general liability insurance, and the range of scenarios it covers, typically relates to accidents – those freak, unforeseen circumstances, that can’t be predicted, that result in injury or damage to property.
Businesses need to have general liability insurance, but it is imperative that company owners ‘top-up’ their cover with a professional liability insurance policy.
It is a very specific kind of insurance that protects you in situations where your professional expertise is relied upon – typically, in the standard client-operator relationship where they are depending upon you to deliver a service to a certain standard.
When you fall below that standard, professional liability insurance is in place to pay for your labor where work needs to be redone or cover the costs of damage caused by a faulty installation.
General liability insurance is there for when an accident causes bodily harm or damage to property – you could have executed an installation properly but then a member of the public trips over your equipment, and you’re in a heap of legal trouble.
It is best to separate the various insurances in your mind:
- General liability insurance – unforeseen accidents that cause injury or damage
- Professional liability insurance – mistakes made in your professional capacity
- Workers’ compensation insurance – when accidents harm or damage the property of your employees
Do you need to insure against contractor mistakes?
Picture the scene: You’re a building firm overseeing a complete new build project, and everything is going swimmingly. You have so many jobs to sub-contract to different parties, but so far, everything has gone without a hitch.
You then sub-contract to a roofer, who makes a mistake in the work and later part of the roof caves in – destroying the homeowner’s furniture and possessions.
Who’s at fault?
Technically, you would argue that it’s the roofer’s work that is at fault; however, remember that the client has instructed you as the building firm to complete the project – as such, they could sue you for the damages caused.
That is why professional liability insurance is vital. You will be covered even when your sub-contractors make those mistakes, as discussed. For a small monthly or annual sum, you can take out insurance cover that can protect you against more considerable losses following a lawsuit.
In the construction trade, different trades are wholly reliant on one another to complete a thorough and professional job. One mistake can ruin YOUR livelihood as well as theirs, so it makes sense to take out professional liability insurance to cover yourself against errors caused by your team and by any sub-contractors and third parties that you employ.
Your reputation is at stake
We live in a time of outrage – where individuals have a whole array of social media channels and review sites at which to air their grievances.
You could make a mistake in a professional capacity that harms a person, and they will make sure that their inner circle of followers and friends is wholly aware of the situation online.
That’s okay because you can deploy reputation management and PR in those circumstances. However, when a legal case drops through your door that requires you to pay tens of thousands of dollars in damages, unfortunately, no amount of apologies and ‘firefighting’ are going to solve the problem.
Protect your reputation with professional liability insurance. Bad reviews are one thing, but the financial damage caused by a mistake while conducting your business could be fatal to your company’s future.