Professional Liability insurance — also called Errors & Omissions (E&O) — covers claims arising from the rendering or failure to render professional services. It protects against allegations of negligence, errors, omissions, misrepresentation, and breach of duty in the provision of professional advice or services. Unlike general liability which covers bodily injury and property damage, professional liability covers financial losses caused by professional mistakes.
Any business that provides professional advice, services, or expertise. This includes law firms, accounting practices, consulting firms, architects, engineers, technology companies, healthcare providers, insurance agents, real estate professionals, and financial advisors. Many professional contracts and client agreements require evidence of E&O coverage.
Professional liability policies are claims-made, meaning coverage responds to claims first made during the policy period. Key policy features include the retroactive date (the earliest date for which prior acts are covered), extended reporting period (tail) provisions, and consent-to-settle clauses. Some policies include duty-to-defend while others are indemnity-only, giving the insured control over defense counsel selection.
Professional liability limits range from $1M to $10M per claim with matching or higher aggregate limits. Retentions range from $5K to $250K depending on firm size and risk profile. Premium is driven by firm revenue, number of professionals, specialty, claims history, and the retroactive date. A mid-market professional firm typically pays $15K-$60K annually for $5M in E&O coverage.
An accounting firm failed to identify a material tax liability during an audit, resulting in their client incurring $1.2M in unexpected tax obligations and penalties. The client sued for professional negligence. The E&O policy covered $380K in defense costs and a $950K settlement.