What Does Professional Liability Insurance Cover?
Professional liability insurance protects you when your professional services cause a client financial harm. It goes by three names depending on your industry, and covers defense costs, settlements, and judgments when a client claims your work was negligent, erroneous, or incomplete.
Covered vs Not Covered
Covered
- ✓Negligent advice or recommendations
- ✓Errors in professional work product
- ✓Failure to deliver contracted services
- ✓Missed deadlines causing client harm
- ✓Breach of professional duty of care
- ✓Defense costs (even for groundless claims)
- ✓Court judgments and settlements
- ✓Licensing board defense costs
Not Covered
- ✕Intentional fraud or dishonesty
- ✕Criminal acts or illegal activity
- ✕Bodily injury (covered by general liability)
- ✕Property damage (covered by general liability)
- ✕Employment disputes (covered by EPLI)
- ✕Prior known claims before policy start
- ✕Contractual liability you assumed
- ✕Patent or copyright infringement (usually)
The Three Names Explained
Professional Liability
The umbrella term that covers all professions. Used most broadly in insurance industry jargon and by general business insurers.
Errors & Omissions (E&O)
The most common term in business services: consultants, IT professionals, real estate agents, financial advisors, and insurance agents.
Malpractice
Used for regulated professions with formal licensure: doctors, lawyers, dentists, architects, and accountants. Same coverage, different name.
Policy Components
Per-Claim Limit
The maximum amount your insurer will pay for any single claim, including defense costs and settlement. A $1M per-claim limit means no single claim will pay more than $1M total.
Aggregate Limit
The maximum total payout across all claims in a policy year. With a $1M/$2M policy, each claim is capped at $1M, and the total of all claims in a year is capped at $2M.
Deductible / Retention
Your out-of-pocket cost per claim before the insurer pays. Typical deductibles range from $1,000 to $10,000 for small firms. Higher deductibles reduce your premium.
Retroactive Date
The earliest date for covered incidents. Claims from work done before your retroactive date are not covered. Maintaining continuous coverage keeps your retroactive date as far back as possible.
Extended Reporting Period (Tail)
An option to report claims after your policy ends for work done while it was active. Critical when retiring, closing a practice, or changing insurers. Typically costs 1.5-2x your annual premium.
Real-World Coverage Examples
Covered: Consultant gives bad advice
A management consultant recommended a vendor that turned out to be fraudulent. The client sued for $200,000 in losses. E&O covered defense costs ($45,000) and the settlement ($120,000).
Covered: Accountant misses a deadline
A CPA filed a client's tax return late, resulting in $15,000 in penalties and interest. The client sued for the penalty amount plus consequential damages. E&O covered the full claim.
Not Covered: Intentional overcharging
A consultant intentionally inflated hours on client invoices. When discovered, the client sued for fraud. E&O denied the claim because the acts were intentional, not negligent.
Not Covered: Client falls in office
A client tripped over a loose carpet in a lawyer's office and broke their wrist. This is a bodily injury claim covered by general liability insurance, not professional liability.