Do you know if you're providing a service or product?

Sounds like a simple question, right? It's not. Yet, it's fundamental to insuring your business.

Consider a software developer. If they develop an application or program that widely applies and it's sold to the general public, it's a product. If it's developed for a unique user, it's a service.

The difference from an insurance perspective is whether you need products liability or professional liability.

Professional liability implies a consultation, advice, or design like medicine or law or architecture. But how about hair styling, data management or decorating. Interior decorators earn commissions on furnishings, but isn't it the design people are buying?

When you review your company operations, think about the amount of design that goes into your finished product, and how specific it is to one client. Every product or completed operation requires some design. The insurance professional can help determine when a professional liability exposure occurs.

Let's look at a construction management company. They value engineer a project, review plans, manage time-lines, draw and review plan specifications and coordinate sub-contractors. All of these duties are service in nature and are covered by professional liability.

Site supervision is a service. Now the site supervisor picks up a hammer and helps finish framing a concrete form. The super just crossed into completed operations, a general liability coverage.

Professional liability suggests a more personal element - professional reputation. Products and completed operations (general liability) resolves claims by assessing damages to people or property as a result of defective products or finished processes. The insurance company acts on the company behalf to settle the claims.

Professional liability settles disputes similarly except the professional can deny the claim theirself. If they choose this path, whatever the insurance company could have closed the case for becomes the maximum limit. Obviously, this course of action is risky.

Legal and claims costs are separate and in addition to the general liability limit but cost toward the professional liability limit. If you provide a service, keep those legal costs in mind when selecting a limit of liability. Professional liability requires higher limits.
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