What is professional liability insurance and what does professional liability insurance cover?


Professional liability insurance (also known as Errors and Omissions Insurance) protects you and your company from claims your clients may make against you due to errors you or your practice have made, as well as any failures with regards to the performance of your service contract.

This is usually needed by professionals who provide services or advice to clients. The clients may file a claim due to losses that result in an erroneous piece of advice, errors in the service rendered or if the client lost money due to an act of negligence or of omission.

Coverage of Professional Liability Insurance

Professional liability insurance will protect you for instances such as:

  • Actual or alleged errors
  • Loss of client data
  • Negligent oversell
  • System failure
  • Misleading statements

This insurance will protect you in case of your failure to provide a service or for an error you have made. This also protects you against any errors your W2 employees and, for certain types of policies, independent contractors may make. The insurance will pay for:

  • Your legal defense in case you have to face a lawsuit. Even if the allegations of the claimants are baseless, or perhaps trivial, a legal defense may mean a considerable expense on your part. The insurance will help pay for court costs, subject to the policy limits. The same expense will be covered if there are contract performance disputes, or any issues with regards to your professional liability to your client.
  • Settlements or judgments. These are damages you may be legally required to pay to the claimant. For professionals who are shown to fail in meeting his industry's standard of care, the court may order compensation to the client.

The range of coverage of professional liability insurance will depend on the type of policy you have. You can have an occurrence policy, where the protection covers all claims that involve incidents that happen while the policy was still in force. You can also have a claims-made policy, which will cover all claims while the policy is in effect, where the incidents happened even before the policy was made effective.

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