Reading & Understanding Your Professional Liability Insurance Policy

As a rule all professionals carry some type of professional liability insurance, or an errors and omissions (E&O) policy. As the name implies, it is coverage pertaining to claims relating to either providing a professional service or failing to provide a professional service.


As an insurance agent, you’re writing coverages every day, including E&O for others. But sometimes we tend to overlook the details of our own policies. Have you carefully looked at your E&O policy to see what is and isn’t covered?


Every policy is unique in what it offers


The key issue is that no two policies are the same and some of the differences can be extremely significant and therefore important to know. For instance, be sure to evaluate issues such as whether defense costs are “part of” the limit of liability or “in addition to”. This can be a significant issue based on the limits you carry. Who is actually covered, and are you covered for what you do and sell? Just because you listed it on the application does not mean that you have coverage for it. Therefore some sound advice is to review the list of covered professional activities to ensure that you are properly protected. For example, do you offer consulting services in healthcare and risk management. If you provide advice in these areas and something goes wrong, be sure your coverage would come into play.


Many insurance agencies choose to purchase E&O insurance, which are typically issued in increments of $1 million and have per-claim deductibles ranging from $1,000 to $25,000. Some insurance companies specialize in policies for specific professions.


Make certain that your policy remains “in force”


It is vital that you find E&O insurance coverage that is comprehensive and yet still fits your budget. It’s also important to note that almost all professional liability insurance policies are sold on a “claims-made” basis. This means that the insurance only covers work performed while the policy is in force, and for claims actually filed during the term of the policy. If, for any reason, you cancel your E&O insurance policy without arranging for an extended reporting period, your coverage would end, and any claims submitted after the cancellation would not be covered, even though the work was performed while the policy was in effect.


It’s also important to read up on any exclusion that may exist in your insurance policy. Before purchasing this type of policy, you’ll want to think about the most dangerous threats and professional risks for your business, and look for a policy that covers those specific risks.