2024-01-01 · business, liability

Professional Liability Coverage

Overview

Professional liability insurance, also called errors and omissions (E&O) insurance, helps businesses and professionals cover claims that a service, advice, or work product caused financial loss. It is common for consultants, accountants, architects, and technology firms.

What professional liability insurance typically covers

• Negligence claims: alleged mistakes or failure to meet professional standards.
• Errors or omissions: missing details, inaccurate advice, or oversights.
• Defense costs: legal fees, settlements, and judgments.
• Client financial loss: reimbursement for damages tied to covered professional services.

Common exclusions and limitations

• Bodily injury or property damage: usually handled by general liability.
• Intentional wrongdoing or fraud: excluded from coverage.
• Contractual liability: promises beyond standard professional duty may not be covered.
• Prior acts: incidents before the retroactive date are excluded.

Key cost factors

• Industry risk profile: higher-risk professions pay more.
• Revenue and size: larger firms typically face higher premiums.
• Claims history: prior incidents can increase rates.
• Coverage limits and deductible: higher limits and lower deductibles cost more.

How to compare policies

1. Check claims-made details: confirm retroactive date and reporting requirements.
2. Review covered services: ensure all lines of work are listed.
3. Compare defense cost handling: inside or outside policy limits.
4. Assess consent-to-settle clauses: understand who controls settlements.

Tips for choosing coverage

• Maintain continuous coverage to avoid gaps in claims-made protection.
• Align limits with client contracts and project sizes.
• Document scopes of work to reduce disputes and support defense.

Frequently asked questions

Is professional liability required by law? Some professions have regulatory requirements, but many carry it due to client contracts.

Does it cover subcontractors? Only if the policy includes them; verify your policy’s definitions and endorsements.

Is cyber liability included? Typically no, so consider a separate cyber policy if you handle sensitive data.