What are the differences between commercial third-party liability and professional liability?

Liability risks are part of everyday business. A mishap can be all it takes to be at risk for large claims for damages. Commercial third-party and professional liability insurance protect you against unsubstantiated claims and pay the amount owed in the event of substantiated claims. But what is the difference between the two types of insurance? 

General commercial third-party and professional liability: the differences at a glance 

Both insurances cover bodily injury and property damage (as well as any resulting financial loss) that occurs in the course of business activities. The main difference: 

• Commercial third-party liability insurance focuses on bodily injury and property damage caused by “physical errors,” such as faulty assembly or accidents. It is therefore particularly relevant for manufacturing companies as well as companies in the trade, construction and hospitality sectors. 
• Professional liability, on the other hand, is about “intellectual mistakes,” such as incorrect advice. In addition to bodily injury and property damage, it also covers pure financial loss. These are financial losses that are not attributable to bodily injury or property damage. This makes it essential particularly for advisory, auditing or medical professions. 

Commercial third-party liability insurance in detail 

What does commercial third-party liability cover? 

Unlike professional liability insurance, commercial third-party liability insurance protects against business incidents that result in personal injury, property damage or environmental damage. For example: 

• A customer is injured in a shop. 
• While installing a kitchen, an installer damages the customer’s property. 
• A customer suffers water damage due to faulty installation of a washing machine.  

Who should take out commercial third-party liability insurance? 

Regardless of the industry, commercial third-party liability makes sense for all companies that can be held liable due to their (physical) work – especially in connection with customer traffic and products. Examples include: 

• Artisan and construction companies 
• Production companies 
• Food service and retail businesses 
• Agricultural operations 

How much does commercial third-party liability insurance cost? 

The cost of commercial third-party liability depends on various factors: 

• Sector and activity profile: The higher the risk of bodily injury or property damage, the higher the premium. A construction company operating on the construction site pays more than a pure commercial enterprise with no customer traffic. 
• Turnover: Higher turnover often indicates more orders and thus more potential claims. Example: A restaurant with several branches pays more than a small café. 
• Number of employees: More staff means more potential causes of damage. A painting company with 15 employees has a different risk profile than a self-employed person with a sole proprietorship. 
• Sum insured: A higher maximum indemnity amount per claim increases the contribution. Companies that fill orders for large customers often opt for higher amounts, which in turn is reflected in the premium. 
• Deductible: A higher deductible lowers the recurring premium, but increases the costs that have to be paid out of pocket in the event of a claim. 

Professional liability insurance in detail 

What does professional liability cover?

Unlike commercial third-party liability insurance, professional liability insurance protects against personal injury, property damage and environmental damage as well as pure financial loss arising from professional breaches of duty. Here are some examples: 

• An IT service provider incorrectly configures software, which results in a customer losing revenue. 
• An architect misplans, which results in additional costs for the construction project. 
• A lawyer gives erroneous legal advice, resulting in additional costs and a possible lost court case for the client. 

Who should take out professional liability insurance? 

Professional liability is important for professional groups that provide advice, planning or medical treatment and for which even the smallest mistakes can have far-reaching consequences. For example, it is essential for: 

• Legal and financial service providers such as fiduciary offices, notaries’ offices, law firms and management consultants 
• Healthcare professionals, e.g. doctors and therapists 
• Technical professionals such as architects and engineers 
• Service providers in IT, advertising, marketing and public relations 

How much does professional liability insurance cost? 

The cost of professional liability coverage also depends on various factors: 

• Sector and risk profile: IT projects that are highly dependent on system availability are more expensive to insure than marketing advice, for example. 
• Turnover and project volume: The higher the potential financial impact of an error, the higher the premium. Example: An architectural firm that plans major projects worth several million francs has a different risk than an individual architect with small projects. 
• No. of employees: As with commercial third-party liability insurance, for example, an individual fiduciary has a different risk profile than an auditing company with 50 employees. 
• Sum insured and deductible: As with commercial third-party liability insurance, higher sums mean more security, but also higher contributions. 
• Special supplementary risks: Special areas of activity and responsibilities may require supplementary coverage. Example: A PR agency is also active in the US or a fiduciary firm also takes on mandates for which it acts as a governing body for other companies, such as a board of directors. 

What liability insurance do I need for my company?  

The decision about what insurance coverage you need depends on your sector, your activity and the risks facing your company. 

Companies with physical activities or products – for example in trade, production, construction, food service or retail – have an increased risk of third parties suffering bodily injury or property damage due to their activities. Such events result in bodily injury or property damage that can result in large claims for damages. Commercial third-party liability insurance is designed for precisely these situations. 

Service and consulting companies such as IT service providers, fiduciary firms, healthcare companies or architecture firms often bear another main risk: The greatest loss does not arise from physical contact, but from professional errors or omissions that result in a financial loss for the customer – without any bodily injury or property damage. Professional liability covers this pure financial loss. 

Certain companies may be exposed to risks for all of the above-mentioned types of damage. The right offer for your activity ensures that there are as few gaps in coverage as possible – regardless of how the damage arises and whether it is material or purely financial.