Professional liability insurance: securing your services and contracts
A professional error can cost more than a material loss.
Because it affects your customers, your deadlines, and your reputation.
Consulting, engineering, IT, fiduciary services, health, technical services: an SME can cause damage to a client without breaking “something”.
Delays, miscalculations, omissions, failure to advise, breaches of confidentiality: these situations often generate pure financial losses, sometimes more costly than material damages.
Standard business liability insurance does not always cover these losses related to professional services.
Professional liability insurance specifically targets this risk, which is often required by clients, tenders, or industry requirements.
In Geneva and French-speaking Switzerland, it becomes an element of contractual compliance and a tool for reputational protection, provided it is properly framed.
Professional liability in Switzerland: understanding the "how" of claims
The value lies in the definition of the service, not in the slogan.
Professional liability insurance protects an SME against the financial consequences of its liability related to its professional activity, particularly when the damage results from an error, an omission, a failure to advise, a breach of contract or an alleged professional fault.
In practice, it is particularly relevant when the main risk is not breaking an object, but impacting an outcome: performance, compliance, deadline, security, reliability, confidentiality.
Depending on the sector, it may be required by a client, landlord, partner, public authority, or as a professional requirement. Amounts, deductibles, and clauses vary considerably from one insurer to another, making a careful reading of the contract essential, especially for SMEs working on complex projects.
What a professional liability insurance policy generally covers includes the payment of compensation owed to third parties when the SME's liability is involved, and often the costs of defense (lawyers, experts, procedures) within contractual limits.
A key point is the nature of the damage: many contracts target pure pecuniary damages (financial losses without bodily injury or property damage) or combine them with other types of damages.
Coverage can also include specific elements: breaches of confidentiality related to the service, processing errors, or shortcomings in service delivery. However, these elements are never automatic; they are governed by precise definitions and extensions.
There are many points to consider and, for an SME, they are often more important than the choice of the guarantee amount.
First, the trigger basis: many professional liability insurances operate “claims-made” rather than “on occurrence,” meaning that the date of the claim, retroactivity, and subsequent coverage take on major importance, particularly in the event of a change of insurer or a cessation of business.
Then, the frequent exclusions: intentional acts, fraud, uninsurable contractual penalties, explicitly promised guarantees of results, deliberate non-compliance with standards, or undeclared activities.
Third point, sub-limits: certain risks (confidentiality, data, intellectual property, subcontractors) can be covered but with specific ceilings.
Fourth point, the deductible: it influences the handling of small claims and must remain compatible with your cash flow.
Fifth point, the obligations: prompt declaration, no admission of responsibility without agreement, preservation of evidence, and cooperation with the insurer.
In terms of documents, it is necessary to be able to produce the client contract, the specifications, the key exchanges, the validation evidence, and the project timeline.
To choose the right level of coverage, a simple decision-making framework helps. Start by mapping your commitments: types of services, criticality for the client, level of dependency, project value, and potential penalties.
Next, analyze your claim scenarios: incorrect advice, delays, non-compliance, subcontractor failure, and financial loss for the client. Then, align the policy with your reality: precise definition of insured activities, consideration of subcontractors, coverage for late claims, and consistency with your business liability and cyber insurance policies, if you process data.
A useful mini-list includes checking for retroactivity, subsequent coverage, sensitive sub-limits, exclusions related to outcome guarantees, and reporting conditions.
Mage & associés can assist you with a review of policies, an analysis of standard contracts and a clarification of grey areas.
The goal is to have a defensible professional liability insurance policy, understood by management, and aligned with your business model, rather than a “standard” document that only provides reassurance on paper.
Three major risks covered by professional liability insurance
Most common in service and project-based SMEs.
Error, omission or failure to advise
An inappropriate recommendation, incorrect settings, a design error or an oversight in a task can lead to financial harm to your client.
Professional liability insurance aims to cover these claims, according to the contract, including defense costs.
Purely pecuniary damages
In many activities, the customer suffers a financial loss without material damage.
That is precisely the heart of the matter.
Professional liability insurance may include these damages, depending on the conditions, whereas other policies often exclude or limit them.
Defense and claims management
Even if you are not responsible, a claim requires time, lawyers, experts and managerial energy.
Professional liability insurance generally provides for the coverage of defense costs, within the framework of the contract, and helps to handle the case in a structured manner.
Réclamation client après un projet: l’enjeu n’est pas que technique
A realistic, fictional example, inspired by SME projects in Geneva.
Realistic fictional example.
A small IT company in Geneva, with around thirty employees, is deploying a management tool for a client in the services sector.
Three months after production began, the client claims that certain settings are causing billing errors and demands financial compensation, citing a lack of advice and a lack of testing.
The client is not talking about material “breakage”: he is talking about financial losses and lost internal hours.
The SME quickly reports the claim to its professional liability insurer, providing the contract, specifications, timeline, validation reports and key exchanges.
A key point is the definition of the insured activity and how the contract addresses purely financial losses. The insurer commissions a technical and legal analysis.
SMEs must avoid a common pitfall: acknowledging responsibility too quickly without agreement, which could complicate the handling of the matter.
The case is resolved in a realistic manner: structured discussions, expert assessment, negotiation, then partial compensation according to the responsibilities established and the contractual limits.
In parallel, the SME is improving its testing procedures and clarifying its liability clauses in its standard contracts.
Operational lesson: effective professional liability insurance is prepared before the claim, through clear contracts, rigorous project documentation and a policy aligned with your actual business.
