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Professional Liability Insurance

What is it?

Professional liability is more commonly known as errors & omissions (E&O) and is a form of liability insurance that helps protect professional advice- and service-providing individuals and companies from bearing the cost of defending against a negligence claims and damages made by a client. The coverage focuses on alleged failure to perform on the part of, financial loss caused by, and error or omission in the service or product sold by the policyholder. These are potential causes for legal action that would not be covered by a more general liability insurance policy which addresses more direct forms of harm. Sometimes the coverage also provides for the defense costs, including when legal action turns out to be groundless. This is important because even groundless claims cost money to defend. Professional liability insurance may take on different forms and names depending on the profession. For example, in reference to medical professions it is called malpractice insurance, while errors and omissions (E&O) insurance is used by insurance agents, consultants, brokers and lawyers. Other professions that commonly purchase professional liability insurance include accounting and financial services, construction and maintenance (general contractors, plumbers, etc., many of whom are also surety bonded), and transport. The primary reason for professional liability coverage is that a typical Commercial General Liability insurance policy will only respond to a bodily injury, property damage, personal injury or advertising injury claim. But various professional services and products can give rise to legal claims without causing any of the specific types of harm covered by such policies. Common claims that professional liability insurance covers are negligence, misrepresentation, violation of good faith and fair dealing, and inaccurate advice.

Coverage

Professional liability insurance policies are generally set up based on a claims-made basis, meaning that the policy only covers claims made during the policy period. More specifically, a typical policy will provide indemnity to the insured against loss arising from any claim or claims made during the policy period by reason of any covered error, omission or negligent act committed in the conduct of the insured’s professional business during the policy period. Claims which may relate to incidents occurring before the coverage was active may not be covered, although some policies may have a retroactive date, such that claims made during the policy period but which relate to an incident after the retroactive date (where the retroactive date is earlier than the inception date of the policy) are covered. Cyber liability, for technology risks, covering data breach and other technology issues, may not necessarily be included in core policies, although it is readily available on the market.

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