Introduction
Professional Liability Insurance, commonly referred to as Errors & Omissions (E&O) Insurance, is a specialized type of business insurance designed to protect professionals and service-based businesses against claims of negligence, mistakes, or failure to perform their professional duties.
This form of insurance is essential in today’s litigious environment, where even a small oversight can result in costly legal disputes, reputational damage, or financial loss.
What Is Covered?
Professional Liability Insurance typically covers:
- Negligence – Failure to exercise reasonable care in the delivery of services.
- Errors or Omissions – Mistakes or missing components in a service or product.
- Misrepresentation – Providing incorrect or misleading information.
- Breach of Contract – Failing to meet the obligations outlined in a contract.
- Defense Costs – Legal defense, even if the claim is groundless.
- Settlements or Judgments – Financial compensation awarded to a claimant.
Note: Unlike general liability insurance, E&O does not cover bodily injury, property damage, or criminal acts.
Who Needs It?
Professional Liability Insurance is essential for professionals and businesses that offer advice, design, consulting, or specialized services. This includes:
- Consultants (management, IT, HR)
- Accountants and Auditors
- Financial Advisors and Planners
- Lawyers and Legal Advisors
- Real Estate Agents and Brokers
- Architects and Engineers
- Insurance Brokers and Agents
- Medical Practitioners (in some cases, as part of malpractice coverage)
- Software Developers and Tech Service Providers
In many industries, carrying E&O insurance is a contractual requirement to work with clients or government agencies.
Key Features
- Claims-Made Basis
Most E&O policies operate on a “claims-made” basis, meaning the policy must be active both when the incident occurs and when the claim is filed. - Retroactive Date
Some policies cover incidents that occurred before the policy start date, as long as they are reported during the policy period. - Defense Outside Limits
Some policies cover legal defense costs separately from the policy limit, offering broader protection. - Tail Coverage
Optional extended coverage that protects against claims made after the policy ends, useful when retiring or changing insurers.
Why It Matters
Even with best practices in place, human error is inevitable. A simple oversight in a report, an overlooked clause in a contract, or incorrect professional advice can lead to lawsuits costing thousands or even millions of dollars.
Without Professional Liability Insurance, businesses and individuals could be personally liable for:
- Attorney fees
- Court costs
- Settlement amounts
- Damages awarded
This can be financially devastating and may force a company to close or an individual into bankruptcy.
Exclusions
Typical exclusions in a Professional Liability Insurance policy may include:
- Intentional wrongdoing or criminal acts
- Bodily injury and property damage (covered under General Liability)
- Employee disputes (covered under Employment Practices Liability)
- Cyber incidents (covered under Cyber Liability Insurance)
Conclusion
In service-based industries, reputation and trust are everything — but even the most diligent professionals can face disputes. Professional Liability Insurance (E&O) provides peace of mind and financial protection, ensuring that a single mistake doesn’t jeopardize your career or business.