What Does Professional Liability Insurance Protect You Against?

Professional Liability insurance, also known as Errors & Omissions insurance (E&O), provides coverage to defend and indemnify the design professional against claims alleging negligent acts, errors or omissions in the performance of professional services (Wrongful Acts).

Wrongful Acts are not limited to defects in plans and specifications. Coverage usually extends broadly to encompass most of the professional services rendered by architects, engineers, and other design consultants. The Professional Liability policy is meant to pay on behalf of the design professional those damages that the design professional is legally obligated to pay as a result of a Wrongful Act.

The policy deductible usually applies to each claim, and may or may not apply to the cost of defense. The policy limit of liability typically includes defense costs, meaning that the limit is eroded and can be exhausted by legal fees and other defense costs. Careful consideration should be made when deciding on an adequate limit of liability.

Policies typically exclude express warranties or guarantees; obligations under worker's compensation laws; claims by employees for employment practices and; the costs to repair/replace faulty workmanship on construction performed by the insured. As with all insurance policies, it is important to read the exclusions to see how they may impact your business.

Professional liability coverage is written almost exclusively on a "Claims Made" form. Once the policy is canceled or non-renewed, all coverage will cease. In order to establish coverage, three conditions must be met:

A policy must be in place at the time a claim is made
A "retroactive" or "prior acts" date on the policy must be dated at least as far back as when the services giving rise to the claim were provided;
A notice in the appropriate form must be provided to the insurer within the policy term or during a grace period that might be thirty or sixty days after coverage termination (this last should be defined within the policy form).

Few, if any, policies will provide retroactive coverage to the previously uninsured firm. It is therefore advisable to begin a professional liability insurance program as early as practical in one's practice.

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