Insuring a consulting firm can pose a challenge. Many professionals start a firm today out of necessity -- creating their own employment. You take years of expertise and open a consultancy, often out of your home or in an office suite. This means a tight budget.
Insurance is one of the areas where entrepreneurs may try to cut costs, but, to protect your business, you need to have your insurance agent evaluate all the exposures you face and offer solid coverage solutions.
What does the professional liability policy cover?
The consultant and its employees provide a service or offer advice, but what if it is faulty? Any professional consultant needs professional liability coverage, also called errors and omissions.
The professional liability policy may be worded as follows:
"The company will pay on behalf of the insured any loss excess of the deductible not exceeding the limit of liability to which this coverage applies that the insured becomes legally obligated to pay because of claims made against the insured during the policy period for wrongful acts of an insured or because of personal injury arising out of wrongful acts of an insured."
In addition, the policy may say, "Coverage for allegations of bodily injury, sickness, disease, or death of any person, or damage to or destruction of any tangible property, including the loss of use...."'
This wording shows the limited scope of the professional liability policy. The intent is to cover only negligent professional or “wrongful” acts. The policy also provides limited protection for personal injury, such as libel or slander, committed by the insured against a third party.
What does the commercial general liability (CGL) policy cover?
The CGL covers bodily injury to a person or damage to the property of others caused by a firm's negligence. As courts have ruled repeatedly, the CGL policy is not a performance bond. A CGL policy is not intended to cover the quality of a company's advice or service. This helps constrain the contractor from low-bidding a job, performing poorly and then relying on the insurance carrier to cover that risk.
Look first at CGL policy language under the insuring agreement, the heart of the policy:
"We will pay those sums that the insured becomes legally obligated to pay as compensatory damages because of 'bodily injury' or 'property damage' to which this insurance applies."
Here are a few of the exposures covered under the CGL:
- Premises and operations liability for persons injured or items damaged while on your business premises or because of your business operations.
- Additional insured coverage when you sign certain written contracts or agreements such as leases.
- Tenant's liability in the event the business operations, for example, accidentally start a fire in rented premises.
- Host liquor liability if you are not in the liquor business.
- Defense for covered claims.
- Bonds and court courts associated with a claim.
- Limited financial remuneration when assisting your carrier in the defense of a claim.
- Intentional injury -- When a business owner acts in self-defense, there is generally coverage. For example, suppose a robber breaks into the darkened firm and brandishes a knife at the owner, who is catnapping. He heaves a computer monitor at the burglar and injures the burglar. Carriers should defend the case unless it appears the insured intended to inflict malicious injury.
- Care, custody and control of property owned by others -- For the consultancy that repairs computers or other equipment, bailee coverage may be necessary.
- Faulty workmanship.
- Liability arising from an aircraft, auto or watercraft -- If you use any of those conveyances in your business, you’ll require specific coverage to protect your assets. However, if you provide an automobile to an employee who gets in an accident, you may have coverage, depending on the coverage form and the jurisdiction.
