What is professional liability or errors and omissions (E&O) insurance?
Professional liability insurance, also called errors and omissions (E&O) insurance, protects service providers when a client claims that their professional advice, work, or services caused a financial loss. It covers legal defense costs and any damages awarded, up to the policy limit.
How is professional liability different from general liability?
General liability insurance covers physical injuries and property damage. Professional liability covers a different exposure: the financial harm that flows from how you do your work. A client does not need to prove negligence to file a claim. The cost of defending against a baseless allegation can run into the tens of thousands of dollars, and this policy pays those defense costs regardless of outcome. For example, an Atlanta-based IT consultant accused of faulty system design faces legal defense costs even if the claim is ultimately dismissed, and those costs start accruing immediately.
What triggers a professional liability claim?
Common triggers for a professional liability claim include:
- An error, oversight, or missed deadline in your deliverables
- Advice that a client later argues was wrong or incomplete
- Failure to deliver a service as described or contracted
- An omission that leads a client to make a costly decision
The coverage applies across a wide range of professions: accountants, consultants, real estate agents, IT professionals, architects, designers, attorneys, and financial advisors. Any profession where a client relies on your expertise and judgment carries this type of exposure. Business owners and board members who want to round out their protection often pair it with management liability coverage.
What does a Georgia professional liability claim look like in practice?
For example, a Georgia accountant files a client’s return and makes an error. The client faces $30,000 in IRS penalties and interest. The client sues. A professional liability policy covers the accountant’s legal defense and any resulting settlement, up to the policy limit, rather than those costs coming from the firm’s operating funds. Without the policy, the accountant pays both legal fees and any settlement out of pocket, regardless of how the case resolves.
What is the difference between claims-made and occurrence professional liability?
Most professional liability policies are written on a claims-made basis. For a claim to be covered, two conditions must both be true: the policy must have been active when the work was performed, and the policy must still be active when the client files the claim. A gap in coverage, even a short one, can leave a service provider exposed to claims from prior work. Continuous, uninterrupted coverage is important for this reason. For example, a consultant who cancels their professional liability policy in January and receives a claim in March for work done the prior year has no coverage, even though the policy was active when the work was completed. Some policies include a retroactive date or tail coverage option to address this gap.
How are professional liability policy limits determined?
Policy limits, deductibles, and the scope of covered services vary by profession and by policy form. A graphic designer and a financial advisor carry very different risk profiles, and the right limit for one is not necessarily the right limit for the other. Revenue, client contract sizes, and the potential financial impact of a mistake on a typical engagement all factor into the right limit selection. A coverage review can help identify the limit that fits your profession and your client mix.