aka Errors and Omissions aka Malpractice
Covers legal liability for actions or
inaction, other than bodily injury or property damage (which are
covered by commercial general liability insurance). Sometimes
written in conjunction with commercial general liability, but more
often as a standalone policy. Written for professionals such as
real estate brokers, attorneys, doctors, financial services
professionals, consultants, architects and technology firms. Also
written for boards of directors of nonprofit and for-profit
The coverage section
is short and simple, e.g.
The Company will pay on behalf of the Insured all sums ...
that the Insured shall become legally obligated to pay as Damages
because of a Claim by reason of a Wrongful Act
There is no list of claims covered; in
effect, there is only a list of claims not covered. Coverage is
determined by the definitions, exclusions, and endorsements
attached to the policy. Basically, any claim is covered if it
results from a defined activity by a defined insured, is not
excluded (or there is an exception to an exclusion), and is not
excluded or limited by endorsement.
Professional liability policies are
usually "claims made". Only claims presented
during the policy period are covered. The wrongful act (action or
inaction) must have occurred after the "retroactive date",
which is usually the inception date of the original policy written
with a particular company. This is why it is important to have
uninterrupted coverage with the same company (although sometimes a
competing company will offer a retro date to match that covered
by the original policy). If coverage is terminated, it is usually
possible to buy "tail" coverage for several years to cover claims
which may take some time to develop after the policy terminates.
The claim deductible is often called self insured
retention (SIR), and may also apply to defense costs as
well as the claim settlement.
There is no standard Professional
Liability policy. There is no substitute for proposed insureds
carefully reading the entire actual proposed policy in the context
of their specific activity and looking for red flag language that
only they are uniquely qualified to recognize. Areas of concern,
like an unacceptable exclusion, can often be addressed by
negotiation with the insurance company.