4 professional liability claims examples

Learn how insurance can help you recover if you make a professional mistake.

Harry Lew
By Harry Lew
Published Mar 28, 2024
Link copied!
a business owner talks about professional liability claims examples with an insurer

If you find yourself embroiled in a legal dispute with a client, professional liability insurance could be a financial lifeline. If your insurer approves your professional liability claims, it could help pay for attorney fees, settlements and court judgments that otherwise would be on your dime.

For small business owners with professional liability insurance, you can get help in the event a client seeks compensation in a lawsuit.

Jump ahead to learn:

What does professional liability insurance cover?

What types of professional mistakes are usually covered? Some possibilities include:

  • Work mistakes: An architect designs a home or commercial building improperly.
  • Oversights: An accountant fails to file an IRS tax form on time.
  • Missed deadlines: An engineering firm blows past a key date for completing an environmental assessment.
  • Professional negligence: A real estate agent fails to disclose property information.
  • Breach of a client contract: A management consultant delivers a strategic plan without the promised market analysis.

Professional liability insurance can help shield you from the costs of civil litigation. If you make a mistake or forget to do something important at work — and your client sues you for it  — your insurance could help cover your legal costs.

A professional liability insurance claim could help cover the financial losses of:

  • A defense attorney
  • Expert witnesses
  • Court fees
  • Settlements
  • Financial judgments

Professional liability coverage can help preserve your assets and your ability to keep working.

What is a professional liability claim?

Unhappy customers might post nasty online reviews or even threaten to sue you. If threats turn serious, let your insurer know as soon as possible and determine if it’s necessary to open a professional liability claim.

If your customer actually sues you, your insurer will begin the claim adjudication process.

Some important points to remember about professional liability claims:

  • Even if your business performed flawlessly, a customer can still sue you. Though you may believe a lawsuit is without merit, you still must mount a defense, which can be expensive.
  • Notify your insurer immediately as soon as client dissatisfaction turns into written complaints or litigation threats.
  • Civil lawsuits — and the insurance claims that follow — are about financial loss and the plaintiff’s desire to receive compensation. To minimize your financial exposure, follow the advice of your insurer-appointed attorney.
  • Your insurer will assign a claims adjuster to your case. They will investigate the dispute and, if it’s covered under your policy, help resolve it.

4 professional liability claims examples

These four examples of professional liability insurance claims are among the most common we see at NEXT:

1. Accountants: Someone pays more taxes because of your error

You mistakenly designate a real estate investment client as a C-corporation rather than a limited partnership. This results in greater federal tax liability for your client, who must pay corporate taxes on property income in addition to personal taxes on dividends received.

The client isn’t happy and files a lawsuit to recover the unnecessary taxes paid.

If you have professional liability insurance, your policy can help to pay for your legal expenses to resolve the dispute.

2. Architects: Someone claims your faulty design caused a financial loss

As a new architect, you don’t have administrative support or an architectural assistant to handle low-level design work but you agree to an aggressive deadline anyway.

As a result, you rush your work and make several design mistakes for a new apartment complex. You fail to specify several mechanical elements such as exhaust fans and access panels, and you omit life-safety components and plumbing piping, valves and drains.

Your professional mistakes require construction change orders and throw the project off schedule — and result in a financial loss for the building developer. Hello, lawsuit!

Your professional liability insurance can help reduce the legal costs you now face and help provide the funds the developer needs to keep the project moving forward.

3. Management consultants: Someone alleges you did negligent work

You’re on assignment for a large manufacturer, and your job is to increase operational efficiency and reduce staffing to increase profitability.

You develop a new organizational design and supply chain workflow. But suppliers change, revise their capabilities and throw the new manufacturing process — and staffing changes — out of whack. And you did not have a plan in place for these changes.

As a result, output tanks, and orders back up. Rather than increase profitability, your plan causes your client to lose sales and post weaker margins. To make up for these losses, the company decides to take you to court.

If you have professional liability insurance, you might not have to pay for settlements or judgments out of your own pocket.

4. Real estate agents: Someone claims you sold them a defective house

You show a home to a couple and they ask you to submit an offer. The property is older so you suggest they have it inspected and tested for radon. They refuse, saying they don’t want to risk having someone else buy their dream home. And you fail to get a signed waiver confirming they declined an inspection.

The offer is accepted and the deal closes. After the couple moves in, they order a home inspection and they learn their dream house has termites. Then they threaten to sue you.

Your professional liability insurance can help you deal with the financial aftermath of this tense client experience. But only if you bought a policy before the incident.

banner get business insurance in 10

How NEXT makes professional liability insurance quick and easy

NEXT helps small businesses in 1,300 professions get just the right insurance coverage they need. We make professional liability insurance easy with 24/7 access to your policy via web and app to help you manage your coverage.

Start a quote, customize your options and access your certificate of insurance online — all in about 10 minutes.

Start a free quote with NEXT.

Harry Lew
About the author
Harry J. Lew is a writer and editor with a passion for simplifying insurance for small business owners. He has over 30 years of experience writing for numerous insurance companies, publishers and professional associations. He was a content manager for Gallagher, a global insurance broker. Harry's writing has also appeared in Insurance Forums, Producer's Web, Financial Planning, Consumer's Digest and National Underwriter.
Let’s find the coverage you need for your business
Business insurance is divided into different policies. We offer seven types so it's easy to design the coverage that fits your business.
General Liability insurance
General Liability
Protect yourself from accidents that cause physical injury or damaged property.
Professional Liability or Error and Omissions Insurance
Professional Liability/E&O
Shield yourself from lawsuits that claim your work errors caused financial losses.
Workers' Compensation Insurance
Workers’ Compensation
Cover medical bills and lost wages if your employees have an accident at work.
Commercial Auto Insurance
Commercial Auto
Stay on the road with coverage for dents, tows and damage to someone else’s vehicle.
Tools & Equipment Insurance
Tools & Equipment
Upgrade your general liability coverage to protect any gear that’s stolen, damaged or lost.
Commercial Property Insurance
Commercial Property
Keep your building, inventory and equipment protected from fire or water damage.
Business Owner’s Policy Insurance
Business Owner’s Policy
Combine general liability and commercial property into one policy to protect your business.
What we cover
Chat with Us

Mon – Fri | 8 a.m. – 5 p.m. CT

© 2024 Next Insurance, Inc. 975 California Ave, Palo Alto, CA 94304, United States
Better Business Bureau
Issuance of coverage is subject to underwriting. Not available in all states. Please see the policy for full terms, conditions and exclusions. Coverage examples are for illustrative purposes only. Your policy documents govern, terms and exclusions apply. Coverage is dependent on actual facts and circumstances giving rise to a claim. Next Insurance, Inc. and/or its affiliates is an insurance agency licensed to sell certain insurance products and may receive compensation from insurance companies for such sales. Policy obligations are the sole responsibility of the issuing insurance company. Refer to Legal Notices section for additional information.

Any starting prices or premiums represented before an actual customer quote are not guaranteed and are representations of existing premiums of active policies as of December 6, 2023. To the extent permitted by law, applicants are individually underwritten, not all applicants may qualify. Individual rates and savings vary and are subject to change. Discounts and savings are available where state laws and regulations allow, and may vary by state. Certain discounts apply to specific coverages only.