Professional liability insurance (sometimes called E&O or errors & omissions) is used by consultants and white collar professionals like lawyers, architects, engineers, physicians, and insurance brokers to protect against an actual or alleged failure to provide your professional services.
White collar professionals face all kinds of liability. Professionals are people who have additional training and/or expertise in a specific area and your clients rely on you for advice or services. That said, everyone makes mistakes eventually which can cause severe financial loss or even bodily injury to your clients resulting in a costly lawsuit for damages. A professional liability policy is required because a commercial general liability (CGL) policy does not cover claims arising out of business or professional practices.
Most commonly, claims made against white collar professionals by their clients involve allegations of negligence, malpractice, or misrepresentations.
Claims Example #1: A Management Accountant’s Services Results in Tax Reassessment
- A management accountant tasked with preparing financial statements from a client operating 2 construction businesses
- Revenue Canada seized the client’s records and reassessed the previous 5 years causing the client to become liable for additional taxes and interest
- A large part of the tax reassessment is the result of incorrect source entries made by the client’s bookkeepers
- The client sued the accounting firm alleging that they should have identified the errors.
- The client is claiming for amounts including the additional taxes, interest charged, and professional fees paid
- The management accountant’s professional liability policy defended the lawsuit
Claim Example #2: The Missing Background Check
- A placement agency provided a group of potential candidates to a client.
- The client made a hire based on the recommendation, but the candidate was fired shortly after.
- The ex-employee then sued the company for wrongful dismissal, and the company sued the placement agency.
- Although it was not the placement agency’s usual business practice to do background checks on any potential candidates it forwarded to its clients, the agency did not disclose this in writing to the client, and the case became the professional’s word against that of their client.
- The professional liability insurer worked with both parties to come to an amicable resolution.
Examples Taken from: https://www.trisura.com/wp-content/uploads/2018/06/Claims-EO-18.01.11-1.pdf
These are some of the more straight forward claims examples but you could be liable to a client for even something like missing an important deadline! In these situations, and more, your insurer will work to defend you against the claim, pay legal costs, and damages if you were to be found liable.
Professional liability policies are usually written on a claims-made basis meaning it only insures the claims that are made during the period the policy is active. There are also retroactive dates that exclude coverage for anything that occurred before that date. That means to get the most out of your PL policy, you should arrange coverage sooner rather than later.
Professional liability insurance policies go by many names depending on your profession. For doctors, it may be called medical malpractice insurance whereas for insurance brokers, it’s called errors and omissions (E&O) insurance.