August 05, 2014 Articles

The Liability Coverage Most Businesses Need and Have Never Heard Of

An examination of the most common types of this insurance, its uses and abuses, current litigation, and legislative reactions regulating or banning it

by Louis H. Castoria [1]

Businesses that give advice as all or part of their services face a hidden liability risk, one that often is not covered under their standard insurance policies. Miscellaneous professional liability insurance (MPLI) can fill a major gap in organizations’ risk transfer and management programs. But for those outside the “traditional” professions, the learning curve can be a steep one. This article examines some of the common coverage issues that can arise under MPLI policies.

“Find a need and fill it,” advised Ruth Stafford Peale, wife of positive thinking guru Norman Vincent Peale. Entrepreneurs have been doing exactly that for decades—innovating—by identifying niche markets and creating businesses to serve their needs.

MPLI is one of the more recent innovations in the liability insurance industry. It is a fast-growing line of errors and omissions (E&O) insurance, because MPLI recognizes the risk faced by nearly any business that provides advice: the risk of being sued for (allegedly) giving bad advice.

In the “traditional” professions—law, medicine, accounting, and such—exposure to liability for bad advice is a grudgingly accepted fact of life. Doctors who prescribe the wrong medications, attorneys who miscalculate the date the statute of limitations expires, and accountants who recommend that their clients take a dubious position on their tax returns face “advice liability,” as one might call it. Not only the “learned professions” face this risk. The hardware store that offers advice to customers regarding the products it sells is taking a risk in doing so, though weekend home repair customers routinely expect that free service. So are other businesses that offer advice, either as their stock in trade or as a sideline. Think of the tennis coach, the business consultant, and the mortgage broker: A large part of what they all do is offering professional advice. From adoption agencies to undertakers, nearly every business gives advice, either as its primary service or as an adjunct to it.

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