E&O / Professional Liability Insurance Claims

What Is Professional Liability Insurance?

Professional liability insurance, commonly called Errors & Omissions (E&O) insurance, protects professionals against claims arising from their professional services. Unlike general liability insurance (which covers bodily injury and property damage), professional liability covers economic losses your clients suffer due to alleged mistakes, negligence, or failure to perform your professional duties.

If you provide advice, design services, consulting, or other professional services for a fee, you likely need professional liability coverage. A single claim alleging professional negligence can cost hundreds of thousands of dollars in defense costs alone, even if the claim is meritless.

Who Needs Professional Liability Insurance?

Any professional who provides services or advice to clients should consider E&O coverage. Common professions that need this coverage include:

How E&O Policies Work: Claims-Made vs. Occurrence

Understanding your policy's coverage trigger is critical. Most professional liability policies are claims-made, which works very differently from occurrence-based coverage:

Claims-Made Policies

• Coverage trigger: The claim must be made during the policy period
• Retroactive date: The alleged wrongful act must occur after this date
• Extended reporting period (tail): Option to report claims after policy ends
• Prior acts coverage: May or may not cover acts before policy inception

Occurrence Policies (Less Common)

• Coverage trigger: The wrongful act must occur during the policy period
• Claim timing: Claim can be made years later, still covered
• No tail needed: Coverage continues for acts during policy period
• Usually more expensive: Greater long-term exposure for insurers

What Professional Liability Insurance Covers

Typically Covered

• Defense costs (often paid outside policy limits)
• Settlements approved by the insurer
• Court judgments up to policy limits
• Negligent acts, errors, or omissions in professional services
• Breach of duty arising from professional services
• Unintentional misrepresentation
• Personal injury claims (libel, slander in some policies)
• Copyright infringement in professional work product

Common Exclusions

• Intentional wrongdoing: Fraud, criminal acts, intentional misconduct
• Bodily injury/property damage: Covered by general liability instead
• Employment practices: Discrimination, harassment (requires EPLI)
• Prior knowledge: Claims you knew about before the policy
• Contractual liability: Guarantees beyond professional standards
• Insured vs. insured: Claims between partners or related entities
• Fee disputes: Simple billing disagreements without malpractice allegations
• Punitive damages: May be excluded or uninsurable in some states

Common Reasons E&O Claims Are Denied

Insurers frequently deny professional liability claims. Here are the most common grounds for denial and how to respond:

1. Late Notice

Claims-made policies require prompt notice. If you delay reporting a potential claim, the insurer may deny coverage. Report any incident that could lead to a claim immediately, even if you think it is unfounded.

2. Prior Knowledge

Most policies exclude claims arising from circumstances you knew about before the policy started. On your application, disclose everything - but also understand that known circumstances should be reported to your prior insurer.

3. Intentional Acts

Policies exclude intentional misconduct. Insurers sometimes try to characterize negligent conduct as "intentional" to deny coverage. Fight back if your conduct was truly a mistake rather than deliberate wrongdoing.

4. Outside Scope of Coverage

Your policy covers specific professional services. If you performed work outside your described profession, coverage may be denied. Ensure your policy description matches all services you actually provide.

5. Failure to Cooperate

Policies require you to cooperate with the insurer's defense. Failing to respond to discovery, attend depositions, or provide requested documents can void coverage.

Your Rights When an E&O Claim Is Denied

If your professional liability insurer denies coverage or refuses to defend, you have options:

• Request a written explanation: Get the specific policy provisions cited for denial
• Review the denial carefully: Many denials cite exclusions that do not actually apply
• Check for reservation of rights: A reservation letter is not a denial - the insurer may still cover the claim
• Consider the duty to defend: In most states, the duty to defend is broader than the duty to indemnify
• Send a demand letter: A letter citing bad faith can prompt the insurer to reconsider
• File a regulatory complaint: Your state's insurance department can investigate unfair denials
• Consult coverage counsel: An attorney experienced in insurance coverage can evaluate your options

Selecting the Right E&O Coverage

Choosing appropriate professional liability coverage is critical. Consider these factors:

Coverage Limits

• Per-claim limit vs. aggregate limit
• Defense costs inside or outside limits
• Typical claim sizes in your profession
• Contract requirements from clients

Retroactive Date

• How far back does coverage extend?
• Prior acts coverage availability
• Importance of continuous coverage

Policy Provisions

• Consent to settle clause (hammer clause)
• Choice of defense counsel
• Extended reporting period options
• Exclusions and limitations