Businesses that provide professional advice or services can be sued when a client believes a mistake caused financial harm. Professional liability insurance can help protect your company from the cost of these claims. Below are answers to common questions about this important coverage.

What is professional liability insurance?

Professional liability insurance protects businesses and individuals against claims involving alleged mistakes, negligence, omissions, or failure to deliver professional services as promised.

It is also commonly called errors and omissions insurance, or E&O insurance. In certain professions, similar coverage may be called malpractice insurance.

Who needs professional liability insurance?

Businesses that provide specialized advice, recommendations, designs, or professional services should consider this coverage. Examples include:

  • Consultants
  • Accountants and bookkeepers
  • Insurance agents
  • Real estate professionals
  • Technology companies
  • Architects and engineers
  • Marketing agencies
  • Property managers
  • Financial professionals
  • Healthcare providers

Clients may also require professional liability insurance before signing a contract.

What does professional liability insurance cover?

Depending on the policy, professional liability insurance may cover claims involving:

  • Professional errors or omissions
  • Negligent advice
  • Misrepresentation
  • Missed deadlines
  • Failure to provide promised services
  • Inaccurate information
  • Breach of professional duty

Coverage may include attorney fees, court costs, settlements, and judgments, subject to the policy’s terms and limits.

What is an example of a professional liability claim?

Suppose a consultant recommends a new business system. The system fails, disrupts the client’s operations, and causes a significant financial loss. The client then sues the consultant for negligence.

Even if the consultant did nothing wrong, defending the lawsuit could be expensive. Professional liability insurance may help pay defense costs and covered damages.

How is professional liability different from general liability?

General liability insurance primarily covers bodily injury, property damage, and certain personal or advertising injuries. Professional liability insurance addresses financial harm resulting from professional services, advice, or mistakes.

For example, general liability may cover a client who slips in your office. Professional liability may cover a claim that your advice caused the client to lose money. Many businesses need both policies.

Does professional liability cover intentional misconduct?

Professional liability insurance generally does not cover fraud, criminal activity, or intentional wrongdoing. Other common exclusions may include:

  • Bodily injury or property damage
  • Employment disputes
  • Cyber incidents
  • Contractual obligations beyond professional negligence
  • Services provided before the applicable coverage date

Exclusions vary, so the policy should be reviewed carefully.

What is a claims-made policy?

Most professional liability policies are written on a claims-made basis. This generally means the policy must be active when the claim is made and, depending on its terms, when it is reported.

The alleged error must also occur on or after the policy’s retroactive date. Allowing coverage to lapse can create an uninsured gap for work completed in the past.

What is a retroactive date?

The retroactive date establishes how far back the policy will cover professional services. Claims involving work performed before that date are generally not covered.

When changing insurance companies, businesses should try to preserve their existing retroactive date. Replacing it with a newer date could eliminate protection for prior work.

What is extended reporting coverage?

Extended reporting coverage, sometimes called tail coverage, provides additional time to report claims involving services performed before a claims-made policy ended.

This may be important when a business closes, an owner retires, or coverage is replaced. Tail coverage does not normally cover new work performed after the policy ends.

How much professional liability insurance do I need?

Appropriate limits depend on the type of services provided, contract requirements, client size, annual revenue, and potential financial consequences of an error.

Businesses should also determine whether defense expenses are included within the policy limit. When defense costs reduce the available limit, less money may remain to pay a settlement or judgment.

How much does professional liability insurance cost?

Premiums are based on factors such as:

  • Profession and services provided
  • Annual revenue
  • Number of employees
  • Client types
  • Coverage limits and deductible
  • Claims history
  • Contract requirements
  • Risk-management practices

Businesses with higher-risk services or larger potential client losses may pay more.

How can a business reduce professional liability claims?

Helpful risk-management practices include using written contracts, clearly defining the scope of work, documenting client decisions, communicating delays, maintaining quality-control procedures, and promptly addressing complaints.

Employees should also receive appropriate training and avoid making guarantees that are not supported by the contract.

Protect Your Professional Reputation

Even a well-managed business can face allegations of negligence or professional error. [Agency Name] can help you evaluate your risks, understand policy options, and select professional liability coverage suited to your services.

Contact us today for a professional liability insurance review.

Coverage descriptions are general. Actual coverage is determined by the policy’s terms, conditions, limits, endorsements, and exclusions.