What is professional liability insurance and do I really need it?
If you offer specialized services like consulting, teaching or professional advice to clients, you are automatically held to a higher level of duty and accountability. Your business may be held responsible if a client alleges that an error, omission or negligent act due to your faulty performance OR failure to provide the level of advice or service that was expected resulted in their financial loss. Errors & Omissions Liability aka Professional Liability responds to situations not covered by a Commercial General Liability policy which addresses events related to property damage and bodily injury.
Errors & Omissions Liability protects the business professional by shielding their assets and paying for defense and potentially onerous legal costs if a client makes a claim. It protects the professional’s clients by ensuring there will be adequate funds to pay for damages incurred if the professional’s services are deemed to be faulty.
We often associate the word “professional” with physicians, lawyers, accountants, engineers or other people who require extensive education and training to perform their duties, but you do not need to be a doctor or lawyer to have a professional liability exposure. Virtually any business that performs a service or provides professional advice to a client in exchange for financial compensation can be sued on the basis that it failed to meet its professional obligations.
In some provincial jurisdictions (like Ontario, Quebec, Saskatchewan), Errors & Omissions Liability is mandatory for professionals like Financial Consultants and Estate Planners. Many professional associations (like the Real Estate Council of Ontario or the Human Resources Institute of Alberta), have mandated the requirement to carry Errors & Omissions Liability in order to practice within their fields. We recommend checking your provincial legislation or with your professional association/group about whether or not you are required to carry Errors & Omissions insurance.
Other types of business professionals who might need Errors & Omissions Liability are IT/Computer Consultants, Software Developers, Architects & Engineers, Medical Professionals, Interior Designers, Management Consultants, Counsellors & Mediation Specialists, Web Hosting Companies, Oil & Gas Consultants, Advertising Agencies, Wedding Planners, Travel Agents, etc.
Key Features of an Errors & Omissions Policy:
Claims-Made: A claims-made policy protects an Insured against claims or incidents that are reported while the policy is in force; virtually all Errors & Omissions policies today are provided on a claims-made form. In order to establish coverage, three conditions must be met:
- A policy must be in place at the time a claim is made.
- Many policies specify a retroactive date in the declarations which should be the inception date of your first claims-made Errors & Omissions policy; a retroactive date must remain the same each time your policy is renewed. A retroactive date or a prior acts date must be present on the policy and it must be dated at least as far back as the services giving rise to said claim were provided.
- And prompt notification of claim to the Insurer.
Limits and Deductibles:
- Most Errors & Omissions policies have an Each Claim/Each Occurrence Limit which is the maximum an Insurer will pay for damages arising from a single loss.
- The policy may also contain an Aggregate Limit which is the most an Insurer will pay for all damages arising from all the claims/losses combined in a policy year.
- Defense costs may be subject to the limits stated for Each Claim/Each Occurrence and the Aggregate.
- Some Errors & Omissions policies may have a Deductible which is the amount you must pay out of pocket for each claim or loss before your insurance will apply.
Defense:
One of the key features within an Errors & Omissions policy is legal defense in the event of a claim. The legal costs associated with defense of a claim (whether justified or not) can be substantial; if defense were not covered by your policy, you would be stuck paying defense expenses out of your own pocket. Depending on the specific policy terms (whether defense is inclusive of limits stated or outside the limits stated) it may or may not erode the limits on your coverage.
A standard policy form or wording does not exist within the Errors & Omissions world; there is tremendous variation from one wording to the next. If you are a “traditional professional” like a physician or a lawyer, you may obtain an Errors & Omissions policy specific to your profession. For everyone else (like a management consultant, real estate broker or even a photographer), there is a miscellaneous professional liability wording. There is no “one size fits all” Errors & Omissions policy!
The above stated information is not exhaustive or complete; there are many additional features and variations to each Errors & Omissions wording and policy, including definitions and exclusions which must be reviewed carefully. Speak to your broker and confirm that you’re insured on a proper policy form as related to your profession, exposures and risks.