Professional Liability Insurance
Professional Liability insurance, also known as Errors and Omissions coverage or Professional Indemnity Insurance it is designed to protect professional practitioners against potential negligence claims made by their clients/patients. Professional liability insurance may take on different names depending on the profession. For example, professional liability insurance in reference to the medical profession may be called Medical Malpractice. Notaries public may take out errors and omissions insurance (E&O). Other potential E&O policyholders include, for example, real estate brokers, appraisers, management consultants and website developers. There are also tailor made E&O policies for technology companies, such as technology consultants, software developers, and other creators of technology. This coverage focuses on the failure to perform, financial loss and error or omission of the products or services sold. Additional coverage for breach of warranty, intellectual property, personal injury, security and cost of contract can be added. Basically, this coverage could benefit any business that provides advice or gives a service. It is also sometimes required under contract by other businesses that are the beneficiaries of the advice or services given.
The primary reason for professional liability insurance is that a typical commercial general liability insurance policy will only respond to a bodily injury, property damage, personal injury or advertising injury claim. The previously mentioned professional services and products can cause claims without causing a bodily injury, property damage, personal injury or advertising injury. Common reasons alleged in making claims on these policies are negligence, misrepresentation, violation of good faith and fair dealing, and inaccurate advice.
For example:
A software product fails to perform properly, it may not cause physical damages, personal or advertising injuries, therefore the general liability policy would not be triggered. It may, however, directly cause financial losses which could potentially be attributed to the software developer's misrepresentation of the product capabilities. Importantly, the coverage may not just cover the financial loss but also provide for the defense costs - even if a legal action turns out to be groundless.
Professional liability insurance policies are generally set up based on a claims-made basis, meaning that the policy only covers claims made during the policy period, claims which may relate to incidents occurring before the coverage was active may not be covered. However these policies will have a retroactive date which can operate to provide cover for claims made during the policy period but which relate to an incident after the retroactive date (where the retroactive date is earlier than the inception date of the policy). It is important to continue your coverage, because cancelling the policy, will in effect, make it as if you never had coverage for any incidents.
*** For exact terms, definitions, limitations and extensions, please talk to your broker and refer to your final policy wording ***
