Professional liability insurance, also known as errors and omissions (E&O) insurance or practical liability insurance, is an important risk management tool for many professionals.
If you are a healthcare professional, lawyer, accountant, engineer, consultant, real estate agent, or any other professional who provides services to clients, professional liability insurance is worth considering.
This article will explore the benefits, key considerations, and real-life examples of professional liability coverage.
Defining Professional Liability Insurance
Professional liability insurance is a type of coverage that can protect against claims and lawsuits related to the work you perform.
These claims can arise from:
- Services you did not perform
- A mistake in your work
- Work you failed to do correctly
In other words, professional liability could cover instances when you did something you shouldn’t have done (an error) or when you didn’t do something you should have done (an omission).
Types of Professional Liability Policies:
- Executive Liability Insurance
- Errors and Omissions (E&O) Insurance
- Malpractice Insurance
How Professional Liability Insurance Works – A Real-Life Example
For example, let’s consider this scenario involving a claim made against a law firm:
In this example, the insured law firm provided legal services involving a commercial loan. The loan was intended to be non-recourse, which means the client could not be held personally liable if they defaulted. However, the loan defaulted, and the note was sold to another lender.
The new lender sued the client. An issue over the translation of the loan contract, which the law firm drafted, came up in court, and the court determined the contract was unambiguous and that the law firm had made an error.
A claim was later filed against the law firm for the settlement amount and $465K in related attorneys’ fees. Overall the matter was resolved for an expense of approximately $800,000.
This scenario demonstrates that even careful legal professionals can make errors leading to a client lawsuit. However, in this case, professional liability insurance coverage prevented the law firm from incurring out-of-pocket costs that could have put the firm out of business.
Claim Scenario provided by CNA
Professional Liability vs. E&O Insurance
Errors and omissions (E&O) insurance and professional liability insurance offer simular coverage. However, different industries use different terms to refer to the same type of protection.
For example:
- Legal, healthcare, and finance industries often refer to it as professional liability insurance.
- Real estate, consulting, and IT sectors typically call it errors and omissions (E&O) insurance.
Despite the terminology differences, both policies protect professionals from claims related to mistakes, negligence, or failure to fulfill contractual obligations.
Choosing a Professional Liability Policy
Before purchasing a professional liability policy, you should first ensure you understand your state’s licensing and compliance rules.
Key Steps to Choosing the Right Coverage:
✔️ Work with an independent insurance agent to assess your needs.
✔️ Carefully review policy terms, exclusions, and coverage limits.
✔️ Ensure the policy aligns with your industry’s regulatory requirements.
You may find this illustration helpful in understanding how coverage needs are determined:
Take Action to Safeguard Your Business
Find out how Mason-McBride can help protect your business and request a proposal.
Additional Resources
For more helpful insights, check out:
- OSHA Updates Electronic Recordkeeping Rules
- Decoding E&O Insurance Policy Language
- Social Engineering Scams to Watch For
- Cyber Insurance Exclusions
Article By Jamie Parry
