What is malpractice (professional liability)?

Malpractice is an error or other act of negligence made by a professional. As a skilled professional who has received specialized training, there are certain expectations regarding the standard of care you provide to your clients.

In other words, professionals should know better than to make certain mistakes while doing their job.

For example, a medical professional, such as a doctor or nurse, is expected to diagnose a heart attack and recommend appropriate medical care. Patients and their loved ones have a reasonable expectation of the services that their doctors and other medical experts are capable of providing.

Because of this expectation, professionals of all stripes can be held responsible (liable) for providing less than stellar services, such as misdiagnoses, medical errors, delayed diagnoses, mismanaged medical records, or even wrongful death claims.

When someone outside your business feels you have committed a breach of duty, they can file a claim against your company to recoup their financial loss.

Unfortunately, American malpractice claims can become complicated and expensive very quickly. Even a consultation with a medical malpractice attorney can cost hundreds or even thousands of dollars.

The statute of limitations for malpractice can range from one to ten years, depending on the location and industry. Malpractice insurance state requirements and costs for small business owners also vary.

Having the right coverage before you need it is essential to protecting your small business from costly lawsuits. Medical professionals are not the only ones impacted by malpractice, either. Read on to learn how malpractice can affect your small business, even if you never make a mistake.

When most of us hear the word malpractice, we often think of healthcare professionals, probably because medical malpractice cases tend to get the most media attention.

But almost any small business owner who provides professional services can be accused of malpractice, it just might not be called the same name.

Different industries have various ways of referring to malpractice, but the following terms mean roughly the same thing.

Malpractice: This term is commonly used to refer to medical malpractice claims involving healthcare practitioners (including therapists). It covers medical negligence, surgical errors, wrong medication prescriptions, and other related medical errors.

Errors and omissions (E&O): E&O is used more often in fields that involve technical or mathematical finesse, such as accounting and IT consulting.

Professional liability: Professional liability may be the most common term concerning professional errors. Some industries will replace "professional liability" with a more specific term, such as photographer's liability.

Luckily, insurance providers offer professional liability insurance to protect all kinds of professionals from the high cost of these service-related claims. Let's take a look at some of the situations that can lead to a professional liability claim:

Violations of professional standards: If a physical therapist offers faulty advice and ends up worsening a patient’s condition, the patient could sue the PT for failure to abide by a duty of care to try to recoup the cost of the ensuing medical bills.

Simple negligence: This type of professional liability claim deals with human errors—the kind that could happen to anybody. Let's say that a vet's assistant accidentally lets a dog out and it gets hit by a car. The pet owner could accuse the vet of negligence and take them to court.

Errors and oversights: For example, say a tax professional makes a small calculating error that ends up costing their client a lot of money. The client could file an errors and omissions claim against the tax professional.

Breaches of contract: If you are under contract with a company or client, you can be sued if they believe you didn't meet your expected professional standards.

Undesired outcomes: Basically, you can be sued whenever a client or customer is unhappy with the result of your service. For example, a lawyer could be sued for legal malpractice if the client doesn't like that they didn't win a case.

Small business owners can be sued for errors and omissions or professional liability claims even if they perform their work without a hitch. That's because these claims often stem from factors that are largely beyond your control, including a client's:

• Unmet expectations (that perhaps suggest they'd never be satisfied)
• Fundamental misunderstanding of a profession's limitations
• Misunderstandings that can arise because a client didn't read their contract
• Personality flaws that you can't reason with
• Incorrect assumptions and misattributed causation of side effects or negative impacts

You might think that claims stemming from these issues would probably not hold up in court—or even get there in the first place.

But for most small business owners, that doesn't matter. They will still need to hire a lawyer for legal counsel as soon as the formal complaint or lawsuit arrives, which can cost thousands of dollars, even if you never go to court.

In legal terms, professional liability is considered a "tort liability," a term that concerns civil wrongs (as opposed to criminal wrongs).

Small businesses are not safe from expensive settlements or judgments just because they may not have deep pockets. In fact, small businesses are often saddled with the majority of liability costs.

According to the U.S. Chamber Institute of Legal Reform's Tort Costs for Small Businesses report, small businesses incurred 48% of America's $347 billion in tort liability costs in 2021 alone, even though they only accounted for 20% of the revenue.

Small businesses with less than $1 million in revenue bore $112 billion in annual tort liability costs.

Small business owners can protect their medical practices and other businesses from the high cost of malpractice lawsuits by adding professional liability insurance to their business protection plans.

Contact one of our insurance agents to learn more about your malpractice coverage options.

Complete Insureon's easy online application today to compare quotes for professional liability and other types of insurance from top-rated U.S. carriers. Once you find the right policy for your small business, you can begin coverage in less than 24 hours.