Does Umbrella Insurance Cover Professional Liability?

There’s good reason so many people wonder if their umbrella policy will cover professional liability. For starters, professionals with the highest concerns of risk and exposure likely have wealth or asset portfolios large enough to warrant excess liability or umbrella insurance. Additionally, many business owners find the need for extra liability coverage – personal and professional – arises around the same time. 

In this article, we’ll walk you through how umbrella insurance and professional liability coverage can protect you in the case of a lawsuit or claim. First, it’s important to understand that the type of umbrella coverage you buy determines whether your business activities are included. 

Here are a few quick answers to some of the most common umbrella insurance questions:

Does umbrella insurance cover professional liability or malpractice?

Generally, no – unless you have purchased a commercial umbrella policy, claims stemming from malpractice complaints or professional liability events are not covered. More commonly, a business owner or professional secures primary liability coverage (such as Errors and Omissions or Product Liability) then opts to add excess liability from the same insurer.

What insurance covers professional liability?

There are many types of commercial or professional liability insurance (PLI) options, which we’ll cover in more detail below. Some of the most common professional liability insurance policies include errors and omissions coverage and policies that cover malpractice claims.

Does umbrella coverage cover employer liability?

A personal umbrella policy (the most common) will not cover employer liability. If you have a commercial umbrella policy, you may have some protection beyond the standard limits of an existing employer’s liability policy or workers compensation insurance. 

In every state but Texas, a business with eligible employees must carry workers comp coverage. Working with a trusted insurance agent is the best way to find out if workers comp offers enough protection for your business or whether excess liability or umbrella coverage is needed.

Do you need umbrella insurance if you have professional liability coverage?

Personal lines of coverage complement but aren’t substitutes for primary professional liability insurance. Once a professional secures the right amount of business-related coverage, they should work with their insurance agent to make sure they’re carrying the right amount of insurance related to personal assets. 

This is important because you may need to buy umbrella insurance to protect you in situations where there’s a large claim stemming from, for example, a car accident. Like other insurance, your overall risks, including any recent accidents, can affect how much you’ll pay for umbrella insurance.

When it comes to protecting your personal and business assets, understanding the differences between umbrella insurance and professional liability coverage is crucial. Whether you’re a high-net-worth homeowner or a business owner, an extra layer of protection is usually recommended.

Umbrella Insurance vs. Professional Liability Coverage

Umbrella insurance is often viewed as a catch-all policy that offers extra liability protection for personal claims, beyond the limits of your home, auto, and other personal policies. For individuals with significant assets or high-net-worth status, an umbrella policy is highly recommended to protect against major lawsuits that could jeopardize their wealth.

This extra layer of protection can reduce the risk, for instance, that a major car accident or an unfortunate situation where someone is badly injured at your home, results in legal settlements that deplete your life’s savings or result in seizure of your assets. 

But if you have business activities or are an employer, you may need a separate policy that offers excess liability coverage in the event you’re sued or found liable for damages to another party.

Professional liability insurance covers the risks associated with your professional life, such as errors, omissions, or negligence that lead to claims from clients or patients.

For instance, if a customer sues you for negligence related to your business services or product, your personal umbrella policy will not extend to cover those costs. Instead, you would rely on your professional liability policy. It’s essential to have both types of coverage, as umbrella insurance protects your personal wealth, and professional liability insurance covers the professional risks associated with your business.

In fact, statistics show that liability-related claims, such as reputational harm, product liability, and customer injury, are among the most costly for businesses. For example:

• Reputational harm claims can average $50,000
• Product liability claims cost businesses around $35,000 on average
• Customer injury claims can average $30,000

What Are the Limits of Umbrella Insurance? 

The risks related to both personal and business liabilities are distinct. Umbrella insurance acts as a safeguard against expensive personal claims, while professional liability coverage handles professional and business-related risks.

While umbrella insurance provides broad coverage, there are exclusions. Understanding what is and isn’t covered helps ensure you’re not left with gaps in your protection.

What Is Excluded Under Umbrella Insurance?

• Professional activities: Any lawsuits arising from your business activities, such as malpractice claims or legal action against your company, are excluded. This is why professional liability insurance is critical for business owners and independent contractors.
• Employer liability: Claims made by employees, such as workers compensation or disputes over employment conditions, are also not covered under a personal umbrella policy.
• Intentional acts or criminal behavior: If you intentionally cause harm or break the law, your umbrella policy won’t cover the resulting costs.
• Property damage or liability related to your business operations: While umbrella insurance will provide extra coverage for personal property, it will not cover damage or liability stemming from your business activities.

Why Umbrella and Professional Liability Insurance Work Together

Purchasing a standard umbrella policy can be an essential part of any family’s financial picture – even those who don’t own their own business.  

Business owners and professionals in fields such as healthcare, law, accounting, and consulting, should take separate professional liability coverage into consideration. If a client sues you for mistakes made in the course of your work or for failing to meet your professional obligations, your professional liability insurance will cover legal fees, settlements, and court judgments.

Common types of professional liability insurance include:

• Malpractice insurance: Specifically for healthcare professionals like doctors, dentists, and therapists, malpractice insurance protects against claims of negligence, errors in diagnosis, or failure to provide the expected level of care.
• Errors & Omissions (E&O) insurance: Common for service-based businesses, this covers claims related to mistakes or omissions in the work you perform. For example, a consultant might face a claim if a recommendation they made results in financial loss for a client.

With the potential for such high costs, having a commercial umbrella policy or excess professional liability coverage is a smart move to protect your business assets and minimize financial risk. 

At Independent Insurance Associates, we specialize in helping business owners and individuals find the right insurance policies to fit their unique needs. Contact us today for a personalized consultation and to learn more about how umbrella insurance and professional liability coverage can safeguard your assets.