The highly litigious environment in which we live makes errors and omissions insurance (E&O), or professional liability insurance, vital for many professionals. Errors and omissions insurance protects individuals and businesses who provide professional services to clients. A “professional” is defined as someone who has special knowledge and skill in a certain area, and who uses that skill to provide advice and services to clients. Typically, doctors, lawyers, architects, engineers and accountants are considered professionals.
Today, E&O insurance is becoming increasingly important for a wider range of business people, from actuaries and real estate agents to insurance agents, appraisers, mortgage and securities brokers, business consultants and more. In addition, other types of firms have E&O exposures, even if they do not fall into the professional services category. These might include advertising and PR firms, Internet service providers, Web hosting companies, home inspection services and many more.
What Does E&O Insurance Cover?
Professional liability insurance provides protection for you if a client sues you for negligence or wrongdoing related to your work. This may include actual or alleged errors, omissions, negligence, breach of duty, misleading statements and similar claims resulting from the performance—or non-performance—of professional services. Most E&O policies cover both your defense costs, including attorney fees and court costs, as well as settlements or judgments. Insurance companies offer a variety of specialized policies that are customized for the risks faced by your particular profession. Physicians, in particular, will face the greatest scope of potential E&O exposures.
There are two types of professional liability policies: occurrence policies and claims-made policies.
Medical malpractice insurance is typically written on an occurrence basis. An occurrence policy covers a business for harm to others caused by incidents that occurred while a policy was in force, no matter when the claim is filed. Even if the policy is no longer in force, it will pay for a covered claim that is made for an incident that occurred while it was in force.
Most other types of professional liability policies are “claims-made” or “claims made and reported” policies. This means that the policy covers the business for claims made when the policy is in force, regardless of when the incident happens. A retroactive date written into the policy allows for damages that occurred before the policy was in force to be reported while the policy is in force. Any incidents occurring before the retroactive date would not be covered. How your policy handles claims for incidents that occur before the policy is in force is very important for you to understand when you are purchasing your policy.
Depending on your profession, E&O policies will typically exclude coverage for criminal, fraudulent or malicious acts; bodily injury or property damage (except for medical malpractice); workers’ compensation claims; and punitive damages. Other exclusions may apply depending on the policy and the profession.
Professionals of all kinds must invest in professional liability insurance to protect themselves from client claims of negligence. We can help you understand where you have exposures for professional liability litigation, and we can help you find an appropriate policy to protect yourself and your business.