Professional liability insurance
Also known as: errors and omissions insurance, malpractice insurance
Professional liability insurance covers claims arising from mistakes, negligence, or failure to perform in the delivery of professional services. It fills a gap left by general liability policies, which are not built for losses caused by the rendering of professional advice or care.
Professional liability insurance responds when a client alleges that a professional's work fell below the standard of care their profession requires and caused harm. The harm is often purely financial — a missed filing deadline, a flawed design, an incorrect valuation — which is exactly what a commercial general liability policy is not built to cover, since CGL responds to bodily injury and property damage, and insurers routinely add a professional services exclusion endorsement to put the point beyond doubt for professional services.
The coverage goes by different names depending on the field. Malpractice insurance is the term used for physicians, dentists, and other health care providers. Errors and omissions (E&O) insurance is the term used for insurance agents, real estate professionals, accountants, consultants, and technology firms. Architects and engineers carry professional liability tied to design work. Directors and officers coverage is a close cousin that protects corporate leadership for decisions made in that capacity.
Two structural features come up repeatedly. Most professional liability policies are written on a claims-made basis, meaning coverage responds to claims first reported during the policy period rather than to incidents that merely occurred during it — which makes the retroactive date and any extended reporting period (tail coverage) important when a policy is changed or a practice closes. Second, the policy pays for defense costs as well as damages, and it covers negligent acts and errors, not intentional wrongdoing or criminal conduct.
State property and casualty licensing exams cover professional liability alongside crime, farm, and boiler and machinery coverages, and typically test the distinction between professional liability and general liability. Engineering candidates meet the same concept from the practitioner's side: the FE Mechanical exam's ethics and professional practice section covers an engineer's liability for professional negligence and the standard of care owed to clients and the public.
Key takeaways
- Professional liability insurance covers negligence, errors, and omissions in the performance of professional services.
- General liability policies cover bodily injury and property damage, not professional error, and commonly carry a professional services exclusion endorsement — which is why separate coverage is needed.
- Malpractice is the health care term; errors and omissions (E&O) is the term used in business and financial services.
- Most policies are claims-made, making the retroactive date and tail coverage critical.
- Policies pay defense costs as well as damages but do not cover intentional or criminal acts.