What Is Professional Liability Insurance? E&O and Claims-Made Coverage

Professional liability, or errors and omissions (E&O), addresses claims against a professional or business for mistakes, omissions, negligence or failure to meet an agreed professional standard. It differs from general liability insurance.

1. What Claims May Be Covered?

Allegations may involve service mistakes, incorrect advice, omissions, delay or failure to perform duties that cause a client's financial loss. The policy may pay covered defense costs, settlements or judgments.

2. Who Might Need It?

Consultants, accountants, technology providers, insurance agents, real estate professionals, designers and other knowledge or professional service businesses may be asked for E&O evidence.

3. Why May General Liability Be Insufficient?

Commercial general liability focuses on third-party bodily injury, property damage and some advertising injury. Pure financial loss from professional services generally needs professional liability coverage.

4. How Does Claims-Made Coverage Work?

Many policies require the claim to be first made and timely reported during the policy period, with the relevant act after the retroactive date. The date of the act alone is not enough.

5. Retroactive Date and Prior Acts

The retroactive date establishes how far back eligible work may be covered. When changing insurers, aim to preserve continuous prior-acts coverage and avoid gaps for older work.

6. What Is Tail Coverage?

An extended reporting period generally extends the time to report claims for eligible past work, not the coverage period for new services. It can matter when retiring, selling a business or canceling a claims-made policy.

7. Do Defense Costs Reduce Limits?

Some policies include legal defense costs within limits, reducing what remains for settlement or judgment; others provide defense outside limits. Review per-claim limits, aggregate limits and deductibles.

8. Common Exclusions

Intentional or fraudulent acts, known circumstances, criminal acts, bodily injury, property damage, cyber events, employment disputes and expanded contractual liability may be excluded or need other coverage.

9. When Should You Report?

Report complaints, refund demands, legal letters, regulatory inquiries or known errors that could become claims as required by the policy. Delay may affect coverage.

10. How to Compare

Compare equivalent covered services, retroactive dates, limits, deductibles, defense provisions, territory and tail options. Align the policy description with contracts, website and actual work.

This is general education, not legal or individual insurance advice. The policy and endorsements control covered services, claim triggers, reporting, exclusions and payment.