Read about Professional Liability/E&O Insurance and what types of businesses need it.

Learn about Professional Liability/E&O Insurance, commonly written on a “claims-made” basis.

Professional Liability Insurance is a type of commercial insurance that should be purchased by any business engaged in a profession. The business may be as small as a one-person sole proprietorship or as large as a multi-national corporation. Professional Liability Insurance is needed, because General Liability Insurance excludes claims or loss arising out of business professional practices.

While many occupations in the modern world require a certain degree of education and training, Professional Liability Insurance (also referred to as Errors & Omissions Insurance, or E&O) is designed to provide protection for businesses engaged in specific areas of expertise. The following list of occupations is by no means all-inclusive, but it does show common examples of businesses that should carry Professional Liability/E&O Insurance:

– doctors
– dentists
– lawyers
– accountants
– architects
– engineers
– insurance agents and brokers
– real estate agents and brokers
– travel agents
– stock brokers
– business consultants
– information technology consultants

In general terms, Professional Liability/E&O Insurance protects the insured against claims of negligence or malpractice. All people, professionals included, make mistakes. Depending on the consequences of an accidental wrong action or poor judgment exercised by a professional, a client or customer may sue for damages. For instance, if a dentist accidentally pulled the wrong tooth, or a real estate agent failed to disclose property defects that manifested shortly after closing, a legitimate lawsuit would likely ensue. There are also cases in which a client or customer alleges your business was negligent and sues for damages, even if no mistake was made. Subject to policy terms, conditions, and limits, Professional Liability/E&O Insurance will defend your business and pay settlement or judgment costs, if there are any. From a practical standpoint, the defense provision in a Professional Liability/E&O Insurance policy is often the best piece of mind, because businesses being sued still must defend themselves. Defense costs are often significant, even for frivolous claims that are decided in favor of the defendant.

Most Professional Liability/E&O Insurance policies are written on a “claims-made” basis, which is very different from policies written on the familiar “occurrence” basis. While Professional Liability/E&O Insurance is highly recommended coverage, insureds and prospective insureds should understand three main factors regarding “claims-made” insurance policies:

1. Claims must be made and reported during the policy period, in order for
coverage to apply under a “claims-made” policy.

2. “Claims-made” policies often have a retroactive date, which limits coverage
to claims arising out of acts, errors, or omissions that occurred after the
stated retroactive date. If available, the best retroactive date is no
retroactive date.

3. Once “claims-made” insurance is purchased, it is very important that it
remain in force with no coverage lapses. Any coverage lapse jeopardizes
coverage with respect to acts, errors, or omissions that have occurred,
but for which no claim has yet been made. A partial exception involves
the Extended Reporting Period (ERP) provision in the policy. ERP policy
provisions vary among companies, and individual insureds should discuss
this feature carefully with their independent insurance agent to fully
understand the inherent limitations of ERP.

Richey-Barrett Insurance is your Trusted Choice Independent Insurance Agent for commercial insurance. We also have access to markets providing Dental and other Professional Liability/E&O Insurance.