Errors And Omissions Professional Liability Insurance
Protect yourself and your business if a client is harmed from a service or advice that you provide with professional liability insurance (PLI) and errors and omissions insurance (E&O).
Does your business provide a service? Within the course of your work, does your company give advice to clients on a regular basis? Have any of your clients requested that you obtain insurance coverage to complete a contract? If you answered “yes” to any of these questions, your business is an excellent candidate for professional liability insurance, also sometimes called errors and omissions insurance. With this type of coverage, you are insured in the event that your company gets sued for negligence in the performance of your services. This is true even if you have not made any mistakes.
What Coverage Does Professional Liability Provide?
Professional liability insurance pertains to circumstances that aren’t found in more general types of insurance. For example, you would be covered if your company were allegedly unable to perform a service or give advice. It also focuses on alleged financial loss caused by the business as well as error or omission in the service or product being sold. Whereas most other policies are not nearly this specific, professional liability insurance covers all of these scenarios, each of which can potentially lead to a long and expensive lawsuit. Also, errors and omissions insurance might also cover the cost of your legal defense if you are sued, even when the case is found to have no basis in fact.
How Does This Coverage Work?
In general, professional liability policies are structured on a claims-made basis. This means that only incidents that occur during the policy period will be covered. The policy will pertain to any covered error, negligent act or omission that is committed during the conduct of business at some point in the policy period. Coverage does not include criminal prosecution or legal liability under civil law. Furthermore, technology issues such as data breach may not be covered in this type of policy. It can be purchased on the insurance market and is a valuable form of protection to have if your company is at risk of incurring claims in this area. The coverage period lasts indefinitely, usually for as long as the policyholder continues to provide covered services.
Professions That Can Benefit From an Errors & Omissions Coverage Plan
This type of coverage operates under different names depending on the profession. For instance, doctors know it as malpractice insurance; lawyers, consultants, brokers and insurance agents usually refer to it as errors and omissions insurance. The range of occupations that purchase some form of this insurance are extremely varied.
Still confused about what types of businesses would be good candidates for professional liability coverage? Here are some tangible examples that might make it clearer:
Healthcare professionals of all types run a significant risk of being accused of misdiagnosing, failing to provide proper treatment and making a host of other health-related mistakes that are commonly known as malpractice. Doctors, dentists, chiropractors, nurses and physical and occupational therapists should examine their own situations and cover themselves against such contingencies. This is true even if they work in hospitals or clinics that have their own professional liability/malpractice coverage.
Law & Financial Services
Consultants, lawyers, financial planners, brokers, insurance agents, realtors and architects need professional liability coverage, also known as errors and omissions insurance, because they are in the business of giving advice and providing direct services to clients. Should mistakes occur or should something be left out of the finished product that ends up costing the customer money, these businesses are vulnerable to protracted and costly lawsuits. Errors and omissions coverage protects you against these potential major expenses.
Directors’ and officers’ liability coverage protects a business if any of its leaders commits errors or negligent behavior that results in lawsuits.
Contractors & Maintenance
Construction, engineering, maintenance, general contractors and plumbers, and even some charities and nonprofit organizations benefit from plans that protect service providers against being unjustly sued, often for things they did not do.
The Danger Of Coverage Gaps
If you fail to renew your professional liability insurance, errors and omissions or malpractice coverage on the day it expires, a lapse or gap in coverage might result. There are a number of policy writers who are sticklers about this gap. To justify the gap, you will probably need to provide a valid explanation of why this happened, including but not limited to an act of God or a medical catastrophe. You will also need to provide a signed letter reassuring the carrier that there are no pending claims against the professional liability policy.
What Are “Tail Endorsements?”
“Tail” or “extended reporting” endorsements come into play if a claimable event occurs while coverage is active but is not reported until the policy terminates. Many policies offer this feature. In general, the period during which you are allowed to make a report after policy termination spans anywhere between six months and one year but usually not longer than that. If a policy holder chooses to take advantage of this option, the premium will be increased.
A Note About Civil Liability Insurance
In general, professional liability coverage does not include defamation (including libel and slander), breach of contract, breach of warranty, intellectual property infringement, personal injury, security or cost of contract. However, you can often obtain additional coverage that will ensure that these civil indemnity areas are insured. Be warned, however: there is often a long list of exclusions. Therefore, it is important to read any policy very carefully to be sure it provides the coverage that you need.
Underwriting is an essential component of the insurance process. The job of the underwriter is to assess your individual business situation, evaluate your level of risk and then categorize you into a risk class. Each risk class is made up of businesses that are at similar levels of risk. The major classes are as follows:
- “Preferred” clients are seen to be at a lower than average level of risk and therefore enjoy the lowest premiums.
- “Standard” class clients are at a typical risk level and pay an average premium amount.
- “Rated” clients are at an above average risk level and are charged higher premiums accordingly.
- “Postponed” clients are temporarily placed into the Rated classification. They can be reclassified when more information has been received, after a specified time period has gone by or when situations of concern to the underwriter have been resolved satisfactorily. At that time, the case will be re-evaluated and assigned to one of the other categories.
- “Declined” customers are at a level of risk that is too high for the insurer to provide coverage. If clients have been put into this classification, they must wait at least two years before reapplying for coverage from that particular company.
After classification, the underwriting process continues. First, the underwriter collects information about all of the factors relevant to providing coverage. In the case of professional liability coverage, they may request copies of contracts and documentation that shows any quality control and training procedures that you have put in place. Most likely, you will also need to provide data about any claims you have filed in the past.
The information gathering process will vary by company, with some requesting nothing more than a completed application and others being very meticulous. Once the underwriter has everything they need, the information is analyzed in order to predict the level of risk that your company will pose. Finally, a determination will be made as to the options available to you. Your application will be accepted, denied or accepted with conditions for coverage.
Typical Range Of Rates For Professional Liability Coverage
The median cost for a professional liability policy for a small business is currently $758 per year. However, what you will pay for professional liability coverage will be determined by the type of business you run and the level of risk that is associated with it. As you can imagine, a physician needing malpractice coverage will pay significantly more than would a tax accountant or a web designer. Here are some of the factors that insurers will examine to determine your rates:
- The size of your business. The number of employees you have as well as your annual revenue will be taken into consideration.
- The industry in which you work. Some are much more prone to risk than others.
- Where youris business located. Lawsuits are more prevalent in certain parts of the country, thus affecting your level of risk.
- Your contract procedures. Do you require them of your clients? Are they well-written?
- The type of training you provide to your clients. A poorly prepared worker is more likely to make mistakes that could lead to injuries or other grounds for lawsuits.
- Have you been sued for errors or omissions in the past? Did you win or lose? If you lost, what changes have you made since then to prevent similar instances in the future?
- The procedures you have in place for quality control.
When you are in the process of obtaining coverage for professional liability insurance, one question you should always ask is whether there are any specific requirements that you must follow in your particular state. Your agent should be cognizant of all of the minimums and rules that apply to your state. Be sure to ask before you sign any applications.
What To Look For When Comparing Professional Liability Quotes
It is in your best interest to shop around until you find the professional liability coverage that is best for you. Use these tips to guide you through the process:
Find a carrier that specializes in coverage for your particular line of work. This is the best way to address your industry-specific needs and to get the policy that will meet your unique requirements. You can find suggestions about the best companies from colleagues and from trade associations.
- Get several quotes. This can often be done by filling out a simple form online. You can then speak to a number of agents. You will soon discover that not all policies are created equal. Be sure to take notes to keep confusion to a minimum.
- Compare policies. Don’t just consider the price and the maximum amount of coverage. Keep these factors in mind as well:Is there a consent to settle clause? This requires your written permission before a claim is settled. If it exists, you have more control.
- Are defense costs paid from within the policy or outside? If the former is true, you will have less money available to pay a settlement.
- Limits of liability. Be sure that your coverage amount exceeds the average amount of a lawsuit in your industry in your area.
- Prior acts coverage. This covers you for errors or omissions that may have taken place before this policy goes into effect.
- Know what is covered and what events or types of damage are not.
- Do your homework to find the most reliable and stable companies.
- Before you decide on one company, check for past complaints. The Better Business Bureau and your state’s insurance licensing board or regulatory commission are good places to start.
Tips For Keeping Costs Low And Reducing Risk
Professional liability coverage is a crucial safety net in many industries. Although you should never go without this coverage, there are things you can do to keep your costs down.
- Make clear, written contracts an integral part of your business. They should spell out every aspect of the transaction, including what will and will not be done, any associated fees and the consequences that will occur if either party breaks the agreement.
- Communicate constantly, keeping expectations realistic and documenting any and all changes as the job process evolves.
- Put internal and external quality control protocols in place.
- Regularly pay for an outside auditor to evaluate the effectiveness of your procedures.
- Keep liability claims to an absolute minimum by instituting and enforcing safety procedures and training staff.
- Lower premiums by choosing a higher deductible.
- Bundle your insurance policies so that a single provider administers all of them, including professional liability coverage. You can save money and paperwork this way.
- Don’t stop and start coverage. Your rates will remain lower if you keep your coverage active without breaks.
Frequently Asked Questions About Errors and Omissions Insurance
How long does errors and omissions coverage take to go into effect?
Because policies and insurers vary, it is always best to consult your agent for the answer to this question. In general, however, your policy becomes active when you have received the paperwork and after you have paid your first premium unless it has a prior acts clause.
What is errors and omissions coverage?
Is it different from professional liability insurance? These are two names for exactly the same coverage. Both refer to insurance that protects you and/or your company if a client holds you responsible for a service you provided or failed to provide or if the client perceives that you have made a mistake that caused harm. Medical professionals usually call this malpractice insurance. Accountants, real estate agents and tech professionals usually refer to it as errors and omissions insurance. Architects and engineers prefer the term “professional liability insurance.”
What is professional indemnity insurance?
How does it relate to professional liability coverage? “Professional indemnity insurance” is an umbrella term that refers to all sorts of errors and omissions, professional liability and malpractice insurance. It is not a separate concept. The term is used more frequently in the UK and Australia.
Who needs professional liability insurance?
If you offer services to clients for a fee, you probably need professional liability insurance. Medical and legal professionals, architects, tutors, accountants, engineers, advertising agencies, financial planners, web hosting companies and even wedding planners should seriously consider obtaining this protection. That’s because no one is immune from making mistakes. You don’t want to be left holding the bag if an innocent error or omission cost your customer financially or harmed their reputation.
How does professional liability insurance work?
In general, your policy will be written for a period of one year on a “claims-made” or “claims-made and reported” basis. That means that you are only covered for claims that are made against you and reported to the insurance company during the policy period. You might also have an extended reporting period if there is a retroactive date specified in your policy. Remember to always make a claim with your current insurer, not the one that was covering you when the claimed incident occurred.
How is my premium amount determined?
Several factors go into this formulation: your limit and your deductible, the size of your business, the services you provide, the projects you do and the clients you serve. In addition, your claims history and business practices are carefully considered when the company makes this determination. An average-sized company with 20 workers with an average loss history should pay anywhere between 1.5 and 2.5 percent of its gross fees for professional liability coverage.
Can I get professional liability coverage on a one-time basis for a specific construction project?
Yes, some carriers offer this coverage. In most cases, this type of professional liability insurance cannot be canceled and lasts for a specific number of years. It covers design and construction as well as a finite period of time after construction has been completed in case flaws are discovered.
Will obtaining my own professional liability coverage backfire?
In other words, is it possible that I will be targeted for lawsuits once it becomes known that I have this coverage? The simple answer is “no.” Most attorneys will name everyone associated with the claimable incident in the lawsuit. It makes little or no difference if these parties have or do not have insurance coverage.
If my employer already carries professional liability coverage, why do I need extra?
The fact is that your employer’s coverage is designed to protect their needs and expenses first. You don’t want to be left with insufficient coverage in the event of a claimable event.
What is the difference between claims-made and occurrence coverage?
A claims-made policy covers an event that happened during the dates when the policy was active – but only if a claim is filed while the policy was in effect. By contrast, an occurrence policy gives you coverage for something that happens during the policy period regardless of when you file a claim. For instance, you purchase a policy that lasts from January 1, 2014 until December 31, 2015. On May 1, 2016, you receive notice that you are being sued for a customer injury that occurred on June 4, 2014. If your policy was claims-made, you would not be covered for this event because the policy period has ended. An occurrence policy, on the other hand, would continue to provide you with coverage.
What if I work for several employers?
Am I still covered by professional liability insurance? Yes. Your coverage travels with you no matter who you work for as long as it is within the scope of your professional credentials.
What if I want to change or cancel my policy?
If you want to make modifications to your coverage, all you need to do is contact your agent. Many companies ask that you put your request in writing or submit it via email. Just provide details such as your name, address, policy number and requested change. In most cases, changes will not take effect until the company has received a premium payment that reflects any upgrades you have made in your coverage.
Don’t leave yourself vulnerable to lawsuits stemming from mistakes or failure to provide services. Even if you did nothing wrong, lawsuits can strip you of your financial security and may even bankrupt the company you have worked so hard to build. Take the time to find the best professional liability policy for your unique needs. You’ll be glad you did.
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