Professional Liability Insurance: What’s Covered (and Not)

Myles Trempe

Myles Trempe

Professional liability insurance provides coverage for claims resulting from negligent acts, errors or omissions and personal injury arising from the provision of professional services. Professional services include, but are not limited to, advertising agencies, auctioneers, technology consultants, employment agencies, contractors, architects, lawyers, doctors and accountants. For professions with a professional exposure, this line of coverage is as critical as general liability.

What’s covered and not covered

Professional liability is a separate coverage which can be purchased as an endorsement to a business owners policy or commercial insurance package. Although professional liability policies are not uniform, most commonly these policies provide coverage on a claims-made basis, which include two dates. First, the retroactive date is usually specified in the Declarations page. The error or omission of the potential claim must have taken place after the stated retroactive date and be prior to the expiration of the policy. Second, the claim must be initially reported during the covered policy period or the extended reporting period. These polices usually exclude exposures which are covered on other policy forms such as general liability. Losses based on fraud, dishonesty or criminal acts are not covered (the cost of defense for such claims may be paid). Other exclusions include bodily harm to any person, libel and slander, illegal discrimination and insolvency.

The most common specific types of professional insurance, include:

  • Malpractice insurance: To assist medical professionals accused of negligent behavior or mistakes.

  • Errors and omissions liability: Professionals that consult and or deal on knowledge and advice.

  • Directors’ and officers’ liability: Specifically dealing with any negligent behavior or errors committed by top ranking officials.

  • For profit and nonprofit entities.

How a professional liability policy can cover you

Example: An IT consultant has been contracted to back up their clients’ records and website. The backup is either not completed or the attempt fails, and all data is lost along with the website. The client depends on their website for customer traffic and all sales. It takes one month to redesign the website and the business has a substantial loss of revenue and key accounts. A professional liability policy would protect the IT consultant for their negligence and indemnify the client.

Example: A real estate agent fails to disclose a known problem or defect in a property, such as a problem with mold or radon. The home buyer learns of the problem after the sale is complete, and sues the agent for not disclosing the problem and for the additional costs involved in remediation.

In summary, general liability coverage protects a business from claims resulting from bodily injury or property damage suffered by a third party. Professional liability protects a business from economic damage claims resulting from professional mistakes. 

Contact Wallace & Turner Insurance to learn more about a professional liability policy.