Key Takeaways
- Professional liability (E&O) covers claims arising from professional services—NEGLIGENCE, errors, and omissions in professional work
- Coverage is typically written on a CLAIMS-MADE basis, requiring the claim to be made during the policy period (not when the error occurred)
- D&O (Directors and Officers) protects corporate leaders from personal liability for management decisions
- EPL (Employment Practices Liability) covers claims from employees: wrongful termination, discrimination, harassment, retaliation
- Cyber liability covers data breaches, ransomware, and network security failures—the fastest-growing professional liability line
Professional Liability Insurance
What is Professional Liability?
Professional liability (also called Errors & Omissions or E&O) insurance covers claims arising from professional services. Unlike general liability which covers bodily injury and property damage, professional liability covers economic losses from professional mistakes.
Quick Answer: Professional liability covers claims alleging negligence, errors, or omissions in professional services. It protects professionals from financial losses when clients claim the professional's work caused them harm.
Key Characteristics
| Feature | Professional Liability | General Liability |
|---|---|---|
| Covers | Economic loss from professional errors | Bodily injury, property damage |
| Trigger | Claims-made (usually) | Occurrence |
| Exclusions | Intentional acts, fraud | Professional services |
| Defense | Duty to defend | Duty to defend |
Claims-Made Coverage
Most professional liability is written on a CLAIMS-MADE basis:
| Requirement | Details |
|---|---|
| Claim Made | During policy period |
| Retroactive Date | Error must occur after this date |
| Extended Reporting | "Tail" coverage for claims after policy ends |
Why Claims-Made?
- Professional errors may not be discovered for years
- Claims-made limits insurer's exposure to specific policy period
- Tail coverage (extended reporting period) available for purchase
Types of Professional Liability
1. Errors & Omissions (E&O)
For service professionals:
- Insurance agents and brokers
- Real estate agents
- Accountants and CPAs
- Attorneys
- Consultants
- Technology companies
- Architects and engineers
Covers:
- Negligent acts or omissions
- Failure to render services
- Misrepresentation
- Breach of duty
2. Directors & Officers (D&O)
Covers: Personal liability of corporate directors and officers.
| Coverage Part | What It Covers |
|---|---|
| Side A | Directors/officers when company can't indemnify |
| Side B | Reimburses company for indemnifying D&O |
| Side C | Entity coverage for securities claims |
Common Claims:
- Breach of fiduciary duty
- Mismanagement
- Failure to comply with regulations
- Securities violations
3. Employment Practices Liability (EPL)
Covers: Claims from employees regarding employment practices.
Common Claims:
- Wrongful termination
- Discrimination (age, race, sex, disability)
- Sexual harassment
- Retaliation
- Failure to promote
Trend: EPL claims increasing significantly—average claim costs $125,000+
4. Cyber Liability
Covers: Losses from data breaches and cyber incidents.
| First-Party Coverage | Third-Party Coverage |
|---|---|
| Data breach response costs | Liability to affected individuals |
| Forensic investigation | Regulatory fines |
| Business interruption | Legal defense |
| Ransomware payments | Privacy lawsuits |
| Crisis management | PCI-DSS fines |
Fastest-growing P&C line: Cyber premiums growing 15-25% annually
Professional liability insurance is typically written on what coverage basis?
Which professional liability coverage protects corporate executives from personal liability for management decisions?