Professional Liability Insurance (Errors & Omissions)
What is Professional Liability Insurance?
Professional liability insurance (also known as errors and omissions or E&O insurance) protects businesses and individuals who provide professional services against claims of negligence, mistakes, or failure to perform their professional duties.
Who Needs Professional Liability Insurance?
Professionals and businesses that provide specialized services or advice, including:
- Consultants and advisors
- Accountants and financial advisors
- Architects and engineers
- Real estate agents and brokers
- IT professionals and technology consultants
- Marketing and advertising agencies
- Healthcare practitioners (medical professionals (often called malpractice insurance)
- Lawyers and legal professionals
- Designers and creative professionals
- Any business that provides expertise or advice for a fee
If your business provides professional services or advice that clients rely on to make decisions, you likely need professional liability protection.
What Does Professional Liability Insurance Cover?
Negligence Claims
Covers claims that you made mistakes, were negligent, or failed to deliver services up to the expected standard of your profession.
Misrepresentation
Covers claims that you provided false or misleading information that caused a client to suffer financial loss.
Violation of Good Faith
Covers claims that you failed to deal fairly and honestly with a client in your professional capacity.
Incorrect Advice
Covers claims that your professional advice or recommendations led to a client's financial losses or damages.
Defense Costs
Pays for attorney fees, court costs, and other legal expenses to defend against covered claims, even if the claims are groundless.
Settlements and Judgments
Covers settlements or court-awarded damages if you're found liable for a covered professional error or omission.
Common Types of Professional Liability Claims
Examples of situations that might lead to a professional liability claim:
- A financial advisor recommends an unsuitable investment that causes client losses
- An architect makes a calculation error that leads to structural problems in a building
- A consultant provides faulty business advice that results in a client's financial harm
- A real estate agent fails to disclose known property defects to a buyer
- An IT professional's security oversight leads to a client's data breach
- A marketing agency misses a deadline that causes a client to lose a promotional opportunity
What Professional Liability Insurance Typically Does NOT Cover
Professional liability policies generally do NOT cover:
- Bodily injury or property damage (these are covered by general liability)
- Intentional wrongdoing or illegal acts
- Employment practices issues (covered by employment practices liability insurance)
- Data breaches and cyber attacks (covered by cyber liability insurance)
- General business risks not related to professional services
- Contract disputes unless they involve professional negligence
- Services that were known to be deficient before the policy started
Claims-Made vs. Occurrence Coverage
Most professional liability policies are "claims-made," meaning:
- The policy must be active both when the alleged incident occurred AND when the claim is made
- You typically need to maintain continuous coverage or purchase "tail coverage" for protection after retiring or changing careers
- This differs from "occurrence" policies (like general liability) that cover incidents that occurred during the policy period, regardless of when the claim is filed
Frequently Asked Questions
Is professional liability required by law?
Requirements vary by profession and state. Some professions (like lawyers, doctors, accountants) may have mandatory requirements through licensing boards or regulations. Many clients also require proof of professional liability insurance as a condition of doing business.
What's the difference between professional liability and general liability?
General liability covers physical risks like bodily injury and property damage from your operations. Professional liability covers financial losses resulting from your professional advice, services, or expertise.
How much professional liability coverage do I need?
Coverage needs depend on factors like:
• Your industry and typical claim sizes in your field
• Contract requirements from clients
• Your revenue and assets that need protection
• Many professionals start with $1M per claim / $1M aggregate and adjust based on risk.