Professional liability insurance, also referred to as Errors and Omissions or E&O, protects a business from mistakes made by the business and its employees. Insurance agents, lawyers, architects, consultants, accountants and many more businesses types carry professional liability insurance.
The cost of professional liability coverage will vary depending on your type of business. Architects and engineers face some of the highest costs, largely because the buildings, bridges and products they design are multi-million-dollar projects.
Coverage under an E&O policy protects a business from claims made alleging a professional service you provided caused the claimant a financial loss. This can be from a mistake on the part of you or an employee or these claims can even come up if you didn’t make a mistake, but rather failed to perform some form of service.
Many times, the largest cost associated with a professional liability claim is the defense costs. Your insurance company has a duty to defend up to the policy limits should a claim arise. What many business owners don’t realize is they may not have as much coverage as they think. For example, a $1,000,000 policy can have defense costs included as part of the policy limit or separate. I long lawsuit can cost hundreds of thousands of dollars to defend, leaving you with far less than $1,000,000 in coverage to pay for the actual damages.
You will also want to know if your business insurance is based on a claims made or an occurrence based policy. Occurrence based coverage is much more broad, but fewer carriers are writing this type of policy. An occurrence based policy will pay covered claims based on when they occurred, regardless of when the claim was reported. A claims made policy usually requires the claim occur and be reporting during the policy period. This usually extends to the next renewal if with the same company. If you change companies and have a claims made policy, you may want to look into purchasing tail coverage.
If you aren’t familiar with claims made vs occurrence, or don’t know if your defense costs are included as part of your policy limit then it is probably a good time to sit down with a licensed agent and review these items. In addition to professional liability you may need general liability, workers compensation insurance, inland marine, and/or other lines. At Moreland Risk Management we are happy to review coverage at no cost and with no obligation.