Professional Liability Insurance: Understanding Its Significance

Professional liability insurance (also known as “errors and omissions” or “practical liability” insurance) is an important risk management tool for many professionals. 

Suppose you’re a healthcare professional, lawyer, accountant, engineer, consultant, real estate agent, or any other sort of professional who works for a client regularly. In that case, you may want to consider purchasing this type of coverage.

Several factors must be considered when deciding if professional liability makes sense for you. In this blog post, we will explore the pros and cons of professional liability insurance.

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. The claims may arise from a mistake, something you didn’t do correctly, or something you improperly performed.

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).

Professional liability policies typically fall into three categories: errors and omissions, malpractice, and executive liability, Errors and Omissions (E&O) Insurance.

How Professional Liability Insurance Works in Real-Life Scenarios

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

Unpacking the Differences: Professional Liability Vs. E&O Insurance

Errors and omissions (E&O) and professional liability insurance offer identical coverage. However, while the two policies are the same, different industries use different terms to refer to the same range.

In other words, depending on your line of business, you may hear the term errors and omissions insurance for professional liability. However, there is no difference in these coverages.

Choosing a Professional Liability Policy

Before purchasing a professional liability policy, you should first ensure you understand your state’s licensing rules.

An independent insurance agent can best assist you in navigating your options and finding a suitable policy. However, before signing, be sure to fully read your policy and understand the coverage provided and applicable exclusions.

You may find this illustration helpful in understanding how coverage needs are determined:

Liability Coverage Needs Infographic

Take Action to Safeguard Your Business

Find out how Mason-McBride can protect your business and request a proposal.

For helpful tips on other popular topics, check out commercial articles on

Article By Jamie Parry

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