A short review of the basic professional and management liability coverages (E&O, D&O, EPL, Cyber Risk) will be helpful for some clients, and the first Back to Basics summary covers Errors & Omissions (E&O, Malpractice or Professional Liability).
Errors & Omissions (E&O, Malpractice or Professional Liability) insurance protects professionals and professional organizations from financial loss from allegations of negligence. There are many types of professional classes that need E&O insurance, including:
- Technology Developers/Platforms
- Insurance Agents/Brokers
Professionals of all types hold themselves out to clients as experts in their area of practice. There is always a possibility that a professional's work may fail to meet their clients' expectations, resulting in a claim or lawsuit. E&O insurance is designed to protect the professional from potentially significant financial loss that can result from a lawsuit. Regardless of fault, litigation is costly, time consuming, and damaging to a professional’s reputation.
Professional exposures vary considerably. For example, the potential for a claim and the types of claims are very different for a doctor than for a marketing consultant. And the same holds true for different types of professionals within a profession. For example, a primary care physician may not have the same exposure as a surgeon.
Underwriters look at a variety of factors in selecting and pricing professional risks. These include the obvious ones, such as what does the professional does and who their clients are. Other factors might include the professional’s location, size of firm, professional education, experience, loss history and operating characteristics.
Because of the variation in exposures, E&O policy forms vary by the type of profession and the insurer. Underwriters tend to specialize in certain classes and become experts in the exposures and coverage needs for specific classes of business. It is not unusual for the best price, coverage and service combination to be provided by a smaller specialty insurer with expert underwriters rather than a well-known multi-lines insurer.
Because of the specialty nature of the business, E&O insurance is traditionally considered to be part of the specialty lines insurance market. In many cases, coverage is provided in the surplus lines insurance market rather than the admitted market.
E&O policies typically cover claims resulting from negligent acts, errors or omissions arising out of the provision of professional services, along with related defense costs. Professional services are typically defined in the policy and coverage is typically limited to the specific professional services. For example, an accountant will not be covered for providing services as a mortgage broker.
E&O policies also include defense costs, which can be quite substantial even if the insured is not at fault. Professional liability policies are typically written on a claims-made basis.
All policies contain exclusions for exposures that the underwriter is not intending to cover, and E&O policies are no exception. Some of the exclusions relate to exposures that are or can be insured under a different type of policy, for example General Liability (GL). A few of the typical exclusions include the following:
- Criminal, fraudulent & dishonest acts
- Bodily injury & property damage (for certain professions)
- Violations of securities, ERISA, RICO, HIPAA& similar acts
- Intellectual property infringement (copyright, etc)
- Liability of others assumed under contract
- Employment related claims
- Claims by one insured on the policy against another insured on the policy
General liability (GL) policies are quite different from E&O policies, and do not typically provide E&O or professional liability coverage (there are exceptions). Do not depend upon general liability policies to provide protection from claims for professional negligence without thoroughly reviewing the GL policy – most GL policies have an exclusion for professional services.
You should review your E&O insurance policy to ensure that you have the coverage you expect.
Professionals of all types are being held to high standards of conduct, and lawsuits, both with and without merit, can be distracting and expensive. Professionals are continually exposed to the possibility of claims being made against them for negligent acts, errors, or omissions relating to the professional services provided.
Specialty Insurance Blog – News & Commentary on Specialty Insurance – with an Emphasis on Professional Liability Insurance
Also, see the related Innovate Insurance Blog – Innovation & Entrepreneurship in Insurance