Commercial general liability insurance (CGL) and professional liability insurance (E&O) each offer critical protection for a business, but respond to very different types of exposures. It is common for the general public to assume the CGL covers a business for ‘everything’ but this is not the case.
Commercial General Liability insurance policies cover property damage or bodily injury suffered by third parties that arise from the business’s operations. A common scenario is when a customer enters a commercial establishment, and slips on a wet floor which results in an injury. The customer may then decide to make a claim and sue the business.
Typically in CGL policies, defense costs are covered, and are not included in the limit. To illustrate, this means that if you have a judgment against you of $1 M, and $200,000 in defense costs, with a Limit of insurance of $1 M, the insurance company would pay all of it.
Professional liability insurance covers liability arising from errors or omissions allegedly committed in the course of the service or advice you provide to your customers. These non physical injuries could include a third party’s financial losses for negligent mistakes, omissions, libel, slander, and other types of negligence committed as part of your service.
Professional Liability also typically covers defense costs; however it is commonly included within the limit of insurance. Using the dollar amounts stated above in a professional liability case example, the most the insurance company would pay is up to the limit, i.e. $1 M, and the business would have to pay $200,000. One other key difference between the two policies is that a CGL policy is ‘occurrence based’, meaning the policy in place at the time the damage or injury occurred is the policy that will respond to the claim. Whereas Professional Liability policies are on a ‘claims made and reported basis’, meaning that the negligent error or omission may have happened 2 years ago, but the policy in place at the time the claim is made, is the policy that will respond.
When do you need professional liability insurance coverage? As a consultant, a contractor, small business owner or sole proprietor, if you are providing service or advice to a customer you should absolutely consider Professional Liability. In fact, it is increasingly common in North America for many businesses (your potential customers) to insist businesses they contract with have this important coverage.
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