General Liability protects a business from claims alleging bodily injury and property damage arising out of premises, products or completed operations injuries. Most general liability policies exclude coverage for liability arising out of professional services.
Professional Liability protects against the liability that is the result of an error or omission in the performance of an individual or company’s professional service. For professional services firms, these claims usually allege financial loss suffered by a third party such as a customer. For healthcare firms, policies such as medical malpractice or allied healthcare liability will respond to bodily injury. Examples are an engineer that made an error in the design of a building or a doctor replacing the wrong knee on a patient.
Claims Triggers
General liability policies are often written on an “occurrence” form and professional liability policies are often written on a “claims-made” or “claims made and reported” coverage form. An occurrence-based general liability policy will respond to a claim based on when the bodily injury or property damage actually occurred. For example: A person slips and falls in your building but waits a year to file suit. The policy that was in place at the time of the fall will respond to the claim.
In contrast, a professional liability policy’s coverage is triggered at the time the claim is made. If an engineer has made a design error and that error is not apparent for three years, it is the policy that is in force at the time the claim is made that will respond on behalf of the engineer. For purposes of this example, assume the engineer has a policy in place and that the claim occurred after the retroactive date. To preserve their ability to make claims against the policy, many doctors, engineers, and other professionals will continue to purchase professional liability insurance to maintain the retroactive date.
General Liability policies typically cover the cost of defense outside of the limit of insurance meaning attorney costs do not reduce the amount of insurance available to pay a claim if you or your business are found to be negligent. Conversely, on a professional liability policy, defense costs are typically “inside” the limits of insurance. In that case, attorney’s fees will diminish the limit of insurance available to pay any resulting claim(s). Example: An engineer is sued under his Professional Liability policy. The policy limit is $1M. The cost of defense is $75,000 and settlement is $150,000. In this case, the remaining limit available for the policy term is $775,000. In a similar situation where the General Liability policy responds the $1M limit would only be diminished by the $150,000 cost of a settlement.
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