Professional liability coverage — often referred to as Errors & Omissions insurance — is a specialty coverage for various professions that provide expert services and therefore are held to a higher standard of care in their industry. If your business performs a service or provides advice for a fee you may have a professional liability exposure.
This coverage addresses errors or omissions in providing or failing to provide a service, including in a timely fashion, resulting in loss of income to your client. It also covers various misrepresentations of the services performed by the insured.
Many people would readily recognize the professions that typically need this coverage, including physicians, accountants and lawyers. However, there are many other areas in which businesses may not recognize their professional exposure and the resulting need for this type of coverage. They include:
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Manufacturer’s E&O covers a manufacturing mistake or negligent service that results in your customer’s financial loss
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Technology E&O covers software or equipment failure resulting in financial loss to your customer
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Employed Lawyers/In-house counsels’ opinions in multiple areas can result in a professional liability claim which is not covered elsewhere.
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Miscellaneous E&O can include a variety of professional services such as consultants, payroll processors, benefit plan administrators, event planners, property managers, interior designers and graphic designers, to name a few.
Now that you’ve identified that your company has a potential exposure to errors and omissions arising from your professional services, it’s also important to understand how this type of coverage is unique and must be closely reviewed to make sure it’s the right coverage for your company.
Remember that each insurance carrier’s policy forms are unique and must be read carefully. Here are some important terms and conditions you should be aware of that can vary by policy:
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Carefully review the definition of professional services within the policy to make sure it is defining your exact services. Especially with Miscellaneous E&O policies, what is provided in the application the client submits can be used to define the services and must be carefully reviewed to ensure it is all encompassing
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Does the insurer have a duty to defend?
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Are defense costs included in your policy limits?
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Does the Insured have a right to consent to settle or does the insurer have sole control on whether to settle?
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Does your policy have a deductible or retention, and do you understand how that impacts how your claim is paid?
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While most professional liability policies will be written on a claims-made form, it’s important to understand the difference. A claims-made policy covers you only if the claim:
1. Is filed during your policy period or within your extended reporting period
2. Is for a loss occurring on or after your retroactive date -
An occurrence policy provides coverage for incidents that happen during your policy period, regardless of when you file a claim. These policies can be costlier than a claims-made policy because of how long coverage applies.
According to a 2019 Chubb study of Miscellaneous Professional Liability (MPL) claims data from 2009-2015, the average total loss for an MPL claim reported to Chubb was $227,000. Furthermore, the average loss paid by Chubb above the insured’s self-insured retention was $164,000.
Most companies can’t absorb that kind of loss without feeling dramatic, possibly devastating, effects. Yet such costs are only part of the financial pain from not being insured against such losses. It’s difficult to place a value on the distraction, lost time and especially the damaged reputation that may result from a professional liability lawsuit.
How can Armada provide a solution or help address this topic?
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If you currently have a Professional Liability policy, it may be time for a coverage audit. Policy forms should be reviewed for potential gaps in coverage, with an eye toward negotiating necessary improvements in coverage.
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If you have not yet purchased Professional Liability coverage, Armada can work with you to develop the right coverage for your particular business needs
As always, we’re ready to help guide you through these and other insurance and risk mitigation mine fields, and help you craft just the right coverage for your organization. Just give me a call today, at (216) 350 5050.
