Professional Liability Insurance: Errors & Omissions (2022 Update)

Professional liability coverage differs from malpractice insurance coverage, which doctors, dentists, and other health professionals carry. Professional liability insurance is also called "error or omissions" coverage because it provides financial protection if a professional makes an error or forgets to do something that is industry-standard or bound in the contract.

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Chris Tepedino is a feature writer that has written extensively about home, life, and car insurance for numerous websites. He has a college degree in communication from the University of Tennessee and has experience reporting, researching investigative pieces, and crafting detailed, data-driven features. His works have been featured on CB Blog Nation, Flow Words, Healing Law, WIBW Kansas, and C...

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Laura Walker graduated college with a BS in Criminal Justice with a minor in Political Science. She married her husband and began working in the family insurance business in 2005. She became a licensed agent and wrote P&C business focusing on personal lines insurance for 10 years. Laura serviced existing business and wrote new business. She now uses her insurance background to help educate...

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Reviewed by Laura Walker
Former Licensed Agent Laura Walker

UPDATED: Apr 30, 2022

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The Rundown

  • Professional liability insurance can protect you from being sued
  • There is only a certain amount a policy will payout over the term
  • Professionals might also use business insurance to avoid liability

If you’re a professional or are studying to become one, you might wonder what happens if a client gets upset about a mistake you’ve made and decides to sue you.

For many, this can spell financial disaster. Fortunately, there is an insurance called professional liability insurance that can protect you if you are sued for reasons relating to your job.

In this article, we’ll cover what exactly a professional liability policy is, professional liability insurance examples, the average professional liability quote, professional liability insurance coverage, and the best professional liability insurance company.

You might think of professional liability insurance as a branch of business insurance — it’s what you need for your professional career.

If you’ve already decided you want professional liability insurance or are curious about pricing, enter your ZIP code into our free online quote comparison tool. It’ll give you the best rates for your area based on your demographics.

Let’s get started.

Professional Liability Policy Defined

A professional liability policy is a type of insurance policy that provides coverage if a professional provides a service or advice to a client which the client feels didn’t meet what they were led to expect or if the professional makes a mistake that others in their profession wouldn’t ordinarily make.

These are also called errors and omissions (E&O) policies because the professional that is covered by the policy either made a mistake and/or omitted doing something they should have done by the professional standards of their industry.

There are two types of professional liability insurance policies. Medical professionals like dentists and physicians carry what is called malpractice insurance.

Other types of professionals who give advice and services such as architects, insurance agents, lawyers, engineers, or similar professions carry errors and omissions policies.

While depending on the profession it might be called one or the other type of professional liability policy, they both essentially cover the same things.

Professionals might also use commercial liability insurance if they own a business in which they are shielded from lawsuits (such as LLCs). It may be possible to carry both as well.

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What Professional Liability Covers

What does a professional liability policy cover? There are two limits on a professional liability policy, occurrence, and aggregate. The occurrence limit is the maximum amount of money the policy will pay for any single claim that is filed during the policy’s one-year term. The aggregate is how much the policy will payout in the entire policy term regardless of the number of claims filed during the policy term.

So, a policy with $1 million per occurrence and $2 million aggregate will pay no more than $1 million for any single claim and if there are multiple claims filed during the policy period then $2 million is the most the insurance company will payout.

There are three main types of coverage that are provided under a professional liability policy. The policy covers judgments against the policyholder if they are determined to have committed an error or omission while providing their advice and services to a client.

This can include negligence such as giving incorrect advice, has not provided the service at all that they had promised, or made an omission that results in bodily injury or financial loss for the client.

This can happen in any industry, which underscores the importance for professionals to have this type of insurance even if they already have commercial insurance. For instance, insurance for a photography or videography business might include professional liability errors and omissions insurance as well as business insurance.

Other losses can include personal injury if it’s the result of the professional slandering someone while providing their services or if they are accused of engaging in copyright infringement.

If a case does go before a judge, the professional is eligible to be paid an allowance for each day they have to appear in court. The policy will cover the judgment up to the stated amount of liability on the policy.

The professional liability policy also covers the cost of having a legal defense team. Even when what on the surface seems to be a simple case can result in thousands of dollars in defense legal fees.

While this can have a significant impact on any size of an organization, a small business could be sent into bankruptcy just trying to defend against a lawsuit regardless of the merits of the case which is why having a professional liability policy is so important.

Finally, like many cases in civil court, the majority of lawsuits against a professional end up being settled out of court through negotiations between the involved parties and their attorneys. The policy will provide for the costs of settling the case and the money awarded to the client up to the limit of liability on the policy.

How To Know If You Need Professional Liability Insurance

Who should carry professional liability insurance? If a profession involves giving advice to clients or providing a service they are a candidate for getting a professional liability policy. Doctors provide a medical service and if they omit a medical test that they should have performed they could get sued by their patient.

An architect could be sued for negligence if one of the buildings they designed collapses due to a mistake they made in designing it.

An insurance agent could tell a customer they don’t need comprehensive coverage on their brand new car and when it’s stolen a week later and there is no coverage the agent would likely be sued by his client.

While medical professionals famously need malpractice insurance, there are a great many other professions that need professional liability insurance policies as well, some that are surprising. Basically, if you provide advice or a service, you are exposed to errors and omissions.

This can include anything from wedding planners to advertising agencies. A wedding planner could be sued for failing to plan a reception, for instance, a mistake that no competent wedding planner would ordinarily make.

Another thing to keep in mind is that a company’s general liability policy excludes the types of coverage that a professional liability policy covers.

Just because a professional has general liability does not mean that they are covered if they give bad advice or forget to provide a service that they had signed a contract to do.

The important thing is that not everything that falls under negligence is due to incompetence. Everyone makes a mistake from time to time as it’s human nature.

A professional liability policy provides coverage when a professional or their staff makes a mistake, even innocently, that the professional and their company end up getting sued over.

The Difference Between Occurrence And Claims-Made Coverage

Professional liability policies have two different types of ways they cover claims. The first is an occurrence which means the policy will cover any event the professional is sued for that occurs during the time the policy is in force. The claim can be made at any time, even years after the policy has expired or been canceled.

The second way some professional liability policies cover a claim is called claims-made. This type of policy also only covers events that occur while the policy is active but also has the requirement that the claim has to be made while the policy is active in order for there to be coverage.

Even if the claim was filed days after the policy went out of force there will not be any coverage provided to defend it.

If the professional decides at some point that they want to cancel the policy they might be able to buy what is called tail coverage. If the policyholder can buy it, tail coverage extends the period of time a claim can be made on the policy, although the event causing the claim would still have needed to have happened while the policy was still active

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The Cost of a Professional Liability Policy

Each type of profession has its own risks for the likelihood of a practitioner being sued for an error or omission. These differences in risk mean that some professions have much higher premiums on their professional liability policies than other professions do.

When applying for a policy, the insurance agent will submit the applicant’s information to an underwriter at the insurance company who will review it.

The premium charged depends on the risk that the company has assigned to that profession as well as other factors such as the liability limits selected and the number of employees the professional has.

Some medical professionals such as a heart surgeon are going to have higher premiums on their malpractice insurance policy than someone that is a podiatrist, for example, as the fallout of an error or omission — especially an omission that results in bodily injury — is likely higher for the heart surgeon.

The hospital or facility they work at could provide this type of policy as part of the overall compensation of the medical professional.

Similarly, an architect will likely pay more for an errors and omissions policy than a wedding coordinator because a collapsing building is going to be far more costly to settle than someone forgetting to hire a musician for a wedding reception.

Another factor affecting the cost of a professional liability policy is the professional’s claims history. If a professional has had claims filed against them in the past their rate is going to reflect this history.

Where To Buy A Professional Liability Policy

Most insurance agents are able to sell professional liability policies. If the professional is operating a small business they can likely have their professional liability policy through a general agent that also sells personal and other commercial lines of insurance.

If the professional needs malpractice insurance or has a large operation they will likely want to go to an agent and/or insurance company that specializes in these types of policies.

Otherwise, most insurance companies such as Allstate, State Farm, Farmers Insurance, and Progressive sell these types of policies which are used by businesses across the United States. Larger companies like Allstate and State Farm offer professional liability insurance for even unique local businesses like day spas, salons and barbershops.

Frequently Asked Questions: All Things Professional Liability Insurance

Now that we’ve covered numerous topics related to professional liability insurance, let’s get to your frequently asked questions. They include what is the purpose of professional liability insurance, what does professional liability insurance cover, and what is the average cost of professional liability insurance, among others.

#1 – Who needs professional liability insurance?

Any person that sells their expertise or provides services could use professional liability insurance. This insurance protects the individual in the case that they are not shielded by the company (as is the case with an LLC).

#2 – What is the purpose of professional liability insurance?

The purpose of professional liability insurance is to cover you financially if a client decides to sue you due to an error or mistake you have made. It can pay up to a certain amount over the period of the policy, sometimes millions of dollars.

#3 – What is professional liability covered under?

It is considered a form of negligence insurance. If you were to offer advice or do a service for a client and after they were to believe you made a mistake or error, then they could sue you. If they did, professional liability insurance would cover the financial losses.

#4 – What does professional liability errors and omissions insurance cover?

The key terms are “errors and omissions.” So, really any kind of error that a professional commits or if they omit something that they are legally bound to do (either through a contract, state laws, etc). It protects against the financial damages caused during lawsuits.

#5 – Is E&O the same as professional liability?

“Errors and omissions” is the same as professional liability insurance. They are sometimes referred to as apart or together.

#6 – What is the difference between D&O and E&O insurance?

Directors and Officers insurance (D&O) is there to protect board members and officers of a company, whereas Errors and Omissions is there to protect the employees.

#7 – What is the average cost of professional liability insurance?

Generally, the cost is between $500 and $1,000 per year.

#8 – What is the best professional liability insurance?

AIG is considered to have the best overall professional liability insurance according to Investopedia.

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How To Save Money On A Professional Liability Policy

Every company charges different occupations different rates for professional liability policies. Some insurance companies won’t insure some professions at all as it is not part of their risk appetite.

For these reasons, it’s important to shop around for a quote on professional liability insurance as it will vary quite a bit depending on the insurance company.

To get an insurance quote for professional liability insurance, plug in your ZIP code into our free online quote generator. It’ll give you the best rates for your area based on your demographic information.

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