Professional Liability (Errors and Omissions, E&O)

What Is In a Professional Liability Policy?

Professional liability insurance is also known as Errors & Omissions, or E&O, insurance. This insurance differs from general liability, which typically covers physical and other damages or losses.

Professional liability insurance is designed to handle the errors or mistakes that are more abstract, such as in the case of making a mistake in your professional advice or services. Essentially, if you give bad information and someone sues you, this insurance will cover it. Of course, you didn’t provide the bad information on purpose, so that’s where this insurance comes into play.

This insurance covers any act of negligence, misrepresentation, or inaccurate advice on the part of the professional. When someone sues your company for any of these reasons, Professional Liability insurance will be there to cover the legal expenses and any compensation (up to the policy limit). For example, if your accounting department makes a small error that ends up costing a client thousands of dollars, they can sue and this insurance can protect your company.

For another example, let’s say a client invests in a bunch of stocks at the advice of his financial advisor. Due to unforeseen circumstances, the market changes abruptly and costs the investor a small fortune. Upon further investigation, it is discovered that the advisor didn’t have the means to offer such advice, and the client files a lawsuit. Professional Liability insurance would cover this, as well.

To pay the claims, insurance companies will want to make sure that they fall within the proper covered period. For this, they will create a retroactive date that starts coverage, as well as an extended reporting period that will last for 30 to 60 days after the policy has expired. Any claims made during this window will be covered, but the incident must have also happened within that
time frame.

Tips to Reduce the Chance of Claims

Make sure that your employees are trained on professionalism and how to properly treat
clients and work with them in a professional capacity.

Hold regular training meetings and updates to ensure that best practices are in place at
all times.

Always be sure to hire reputable, licensed, trained professionals that have a solid work
history and references to back it up.

Other Factors to Consider

Your perceived risk will impact the premium that you pay and what kind of coverage is available. Some companies may be a higher risk and therefore have higher rates.

Industry matters, too. Again, some industries are better known for E&O claims and client issues, while others don’t really have a lot of problems.

Policy Review Tips

Make sure you review these elements in your Professional Liability policy:

• What is the coverage amount provided? Is it sufficient?
• Does coverage include legal costs?
• Does the policy include negligence?
• Does the insurer have a strong history of timely claim processing?
• Are there limitations and guidelines on claim filing?
• Are there any broad exclusions in the policy?