Professional E&O

Professional Liability Insurance is coverage for people who make a living from providing clients a service based on expertise. It can help pay for lawsuits when clients feel the business owner did something wrong or failed to do something that should have been done.  Examples of what professional liability coverage can cover for a business include:

  1. Work Mistakes – The insured makes a mistake that cost the client money. For example, in the tax season crunch, taxes were incorrectly calculated. The client now has to pay additional taxes and may even incur fines.
  2. Undelivered Services – The insured has a contract with a client promising to have work done within a specific timeframe. The insured failed to deliver on time and is sued for breach of contract.
  3. Negligent Services – The work done by the insured does not meet industry standards. A licensed contractor is expected to follow building codes.  The contractor has an oversight and as a result, the client has to have the work redone. This costs the client additional money in time and labor.

If the business advises, recommends, consults or designs solutions, this coverage should be purchased.

A separate, but similar product is Directors & Officers Liability. It is often called D&O insurance. It is used to protect directors and officers for claims from stockholders, employees or clients made against them individually while serving on a board or as an officer. It covers claims for managerial decisions that have adverse financial consequences. Without this coverage, the personal assets of directors and officers could be at risk.

Some distinct features of a Professional Liability or Directors & Officers Liability policy are:

  • Defense costs are typically included in the limits selected. This is different from a Commercial General Liability policy, which usually pays defense costs outside of the policy limits.
  • Policies are written on a claims-made basis. The claim must be made during the period in which the policy is in force. So for a policy that is effective January 1, 2017, to January 1, 2018, the claim must occur and be reported within this policy term. While a CGL policy may be written on a claims-made basis, it is typically not.

Be sure to read the policy carefully to understand all coverages, limitations, and exclusions.