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We all make mistakes. For business owners, some of these can be expensive. That’s where Professional Liability insurance, commonly known as Errors & Omissions (E&O) insurance, comes into play. Read more about who needs this coverage and why.
What is professional liability insurance? (What is E&O insurance?)
Professional liability insurance, also known as errors and omissions (E&O) insurance, is a type of coverage designed for businesspeople who provide services or advice to clients. If your business makes a mistake, gives faulty advice, neglects something crucial, or merely gets accused of screwing up, professional liability can provide the funds needed to correct the mistake. If necessary, professional liability may also cover legal defense costs and/or help with a court settlement.
Example: You own a house-painting business. Your crew accidentally paints a client’s house the wrong color. Technically, the property isn’t damaged, so you can’t file a general liability claim. You need professional liability to pay for the time, labor, and product cost of re-doing the job correctly.
NOTE: In the healthcare and legal fields, you may also see the term “malpractice insurance.” Malpractice insurance is a type of professional liability coverage, but these aren’t exactly interchangeable terms.
What will professional liability insurance cover?
Essentially, professional liability insurance will pay to correct your mistake. It will also pay to correct your employee’s mistake, which is very important if you have people overseeing big projects and accounts on your behalf. (In some cases—e.g. contractor professional liability—policies may cover subcontractor mistakes, too.)
PL will also cover defense costs and/or legal settlements, if you’re forced to go to court over a dispute with a client.
What won’t professional liability insurance cover?
Professional liability won’t cover losses caused by an intentional or fraudulent act. In other words, it has to be an honest mistake. If you painted the client’s house the wrong color because you were re-using leftover paint from your last job, that’s not really an error. Likewise, if you won a contract because you provided fake testimonials or credentials, and you get called out on false advertising, that’s not covered either.
PL also won’t cover losses that are designed to be addressed by other forms of insurance. For example:
- Third-party claims of bodily injury or property damage (should be covered by general liability)
- Employee injuries (should be covered by a worker’s comp policy)
- Employee claims of harassment, discrimination, wrongful termination (should be covered by an EPLI policy)
Finally, depending on the type of professional liability policy you buy, you may not be covered for mistakes you’ve made in the past—mistakes that are only becoming evident right now. More on timelines and “triggers” for E&O claims below.
Who needs E&O insurance?
Because this coverage is often associated with financial losses, you might think profesional liability is mainly for lawyers, accountants, wealth managers, investment advisors, insurance agents, and other executives who hold sway over clients’ wallets. But in fact, many different occupations come up against E&O exposures. Here are just a few examples:
- Arborists & Tree Care Professionals
- Associations & Nonprofit Organizations
- IT consultants
- Real Estate Agents
NOTE: Some professionals may purchase professional liability insurance because they are required to do so by a job contract or vendor agreement.
Are all professional liability policies the same?
No! E&O policies are structured very differently, depending on your industry and/or the carrier you choose. A doctor, for example, will have a very different policy than a landscaper. Contractors, in particular (a group that we work with often), have special provisions in their E&O policies relating to the types of mistakes they’re apt to make.
One key variable in different E&O policies has to do with coverage limits—whether or not legal defense costs are included in the policy limit or separate.
Another key variable has to do with timing. “Claims-made” and “occurrence” policies are two types of professional liability policies that will address losses differently.
Depending on your field, you may be required to secure a Massachusetts Professional Liability insurance policy. The experienced team at C&S Insurance will walk you through this important requirement, determine what is necessary for your organization, and then provide you with a policy that safeguards you from loss.
Professional Liability Insurance: Spotlight on the Green Industry
Lots of professional groups can benefit from E&O insurance: accountants, architects, real estate agents, IT consultants, engineers, financial advisors, graphic designers, and more. But the green industry, in particular, encounters some unique E&O exposures. Meanwhile, many landscapers and arborists overlook professional liability insurance, which can protect their companies against installation mistakes, bad advice, faulty products, and incidents of negligence (actual or alleged).
For example, let’s say an arborist crew cuts down the wrong tree or installs a dozen trees that ultimately damage the client’s patio, driveway, or utility pipes. Fixing this damage would typically fall beyond the scope of any general liability coverage. In fact, many general liability policies carry a professional services exclusion, putting repair/replacement expenses back on your shoulders.
A recent article from Total Landscape Care emphasizes, “E&O insurance is especially important for those in the green industry… Many commercial general liability (CGL) insurance policies don’t include E&O coverage; if they do, the amount is not very large. The risk is great for those who do not have E&O insurance…”
Wondering if your job title warrants E&O coverage? Email us at email@example.com for quick answers.
Professional Liability Insurance: Not Always Included
Be careful not to assume your CGL policy or BOP automatically addresses professional liability. While this type of coverage may be added as an endorsement, it’s not typically part of your commercial general liability or business owner’s bundle. If you work from a home-based business, you should also make a point to ask your agent about E&O. Home-based business insurance involves special considerations that are worth discussing with a local professional. Call us at 508.339.2951 for more information.