Professional Liability Insurance: Cost, Coverage & Providers

Professional liability insurance, also known as errors and omissions insurance, covers claims that a business made mistakes or was negligent when providing expert advice or professional services. The cost of professional liability starts around $400 but can exceed $8,000 annually depending on several factors, such as industry type and coverage limits.

Getting the right errors and omissions insurance policy for your business is vital to being properly protected. The Hartford offers a simple online application that dives right into not just your industry, but also your specialty, in order to understand your risk. The Hartford’s online application takes just a few minutes to complete and get coverage.

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Top Professional Liability Insurance Providers

The top professional liability providers are usually national business insurance companies that already offer specific industries general liability on its own or bundled in a business owner’s policy (BOP). Providers can vary in pricing, industry coverage, and underwriting requirements, so you want to find one with a good understanding of your industry and the likely claims in it.

Five errors and omissions (E&O) insurance providers to consider include:

The Hartford

The Hartford is an ideal choice for legal professionals, including attorneys, notaries, paralegals, and estate planners. The Hartford has two programs designed for attorneys contingent on the office size to properly assess and address the risk.

The Hartford is a national insurance carrier that provides excellent small business insurance policies that set the standard for commercial insurance coverage. Most of its policies have extended coverage included at no extra cost, while other carriers only offer them as riders. Agents with The Hartford take the time to evaluate industry needs and develop the right coverage for business owners.

CoverWallet

CoverWallet is an excellent choice for service businesses that work directly with consumers in their homes, such as plumbers, electricians, handymen, and landscapers. Risks change when you work on someone’s home and can lead to claims long after projects are complete. CoverWallet understands this and has the top-rated partners to provide the specific coverage needed for service industries.

CoverWallet is an online insurance broker serving small businesses in all 50 states. With proprietary technology, CoverWallet is able to effectively walk a business owner through the application process while still offering the personal touches of human customer service representatives.

The Doctors Company

The founding product for The Doctors Company is medical malpractice, a specialized form of professional liability insurance for doctors and surgeons. This insurance provider offers policies with the doctor in mind and understands the highly litigious nature of the medical field. There are discounts for medical providers who are active members of many professional organizations, including The American College of Surgeons and The American Association of Neurological Surgeons.

The Doctors Company is a specialized insurance company that caters only to medical practitioners and is the largest malpractice insurer owned by doctors in the nation. The Doctors Company offers most types of liability policies medical providers need, including general liability, employment practices liability insurance (EPLI), and cyber insurance.

AIG

AIG is the right choice for small businesses that provide technology solutions to help other businesses develop and secure digital infrastructures. Errors in this field can lead to significant regulatory issues for clients who have data breaches. AIG understands that technology risks to businesses are greater than ever and has developed professional liability policies to address these risks for IT providers.

AIG, one of the largest insurance carriers in the world, has the ability to write every policy any small business owner needs, even with highly specialized underwriting guidelines. Because AIG insures major corporations globally, it is uniquely positioned to understand the cybersecurity and data breach risks all businesses face.

Hiscox

Hiscox is a good fit for health and beauty professionals such as estheticians, beauticians, and massage therapists. Hiscox also has a large appetite for trainers and holistic practitioners recommending supplements and non-medical health advice. Its errors and omissions insurance starts at $22.50 per month.

Hiscox is a small business insurance specialist focused on using technology to assist small business owners in efficiently and cost-effectively obtaining the right insurance to protect their business assets. Hiscox specializes in independent contractors and sole proprietors with 10 or fewer employees.

What Professional Liability Insurance Is

Professional liability insurance protects businesses and professionals who provide advice or services to clients for a fee. Also called malpractice or professional liability insurance, coverage pays legal defense costs and judgments or settlements, up to the policy limits, on claims accusing you of mistakes, negligence, or bad advice. Intentional acts and fraud are not covered by E&O insurance.

“E&O protects professionals from negligent acts or subpar performance in their work. These acts would not typically be covered by commercial general liability because the actions of a professional are specifically excluded by most commercial general liability policies. Although E&O does not indemnify you from intentional acts, it might defend you against the allegations of the claim.”

— Christopher Morea, Agency Director, Morea Agency

Not every business needs professional liability insurance, but anyone who provides expert advice or services to clients should consider buying coverage. Typically, people who need professional liability have specialized training in a particular field, like law, medicine, or engineering. However, tutors, athletic coaches, and electricians can benefit from an errors and omissions policy.

Professionals who need professional liability insurance typically include:

• Accountants
• Architects
• IT professionals
• Doctors (referred to as malpractice insurance)
• Lawyers
• Personal trainers
• Consultants

The common thread tying together all businesses that should consider purchasing errors and omissions insurance is providing a professional service to customers for a fee. Just about anyone who has a license or who makes a living providing a service to consumers should consider an errors and omissions policy.

Professional Liability vs Errors & Omissions Insurance

Errors and omissions insurance (E&O) is another name for professional liability. Both cover negligence allegations resulting in financial loss for the policyholder’s clients. Professional liability is more commonly used for policies that cover the traditional professions (i.e., doctor, lawyer, architect, and engineer) while E&O is saved for other industries, like accounting and real estate. Some insurers also offer E&O to skilled trade workers.

Professional Liability Insurance Claims-made Policy

If a professional liability policy is written on a claims-made basis, it is triggered by any claim made during the policy period. It doesn’t matter when the triggering event occurs; your insurer pays as long as the event is included in the policy and the policy is active when the claim is filed. Some claims-made policies have a retroactive date that precludes coverage prior to it. In that case, the triggering event must have occurred on or after the retroactive date to be covered.

This type of policy can also include tail coverage to extend the reporting period for events that occur during the life of the policy but aren’t reported until after the policy ends. Claims-made policies are usually less expensive because they actually provide less coverage. Once the policy terminates, so does your insurer’s responsibility for paying claims.

Professional Liability Insurance Occurrence Policy

Errors and omissions insurance can also be written as an occurrence policy. This means that it doesn’t matter when the claim is filed—your insurer pays if the triggering event is included in the policy and occurred while the policy is in force. As a result, occurrence policies are usually more expensive than claims-based policies.

For example, say a tax preparer has a one-year occurrence-based errors and omissions policy. In that year, he makes a mistake that costs his client $50,000, but the error is only discovered after the policy has been canceled. Because it’s an occurrence policy, his insurer covers the claim even if it’s reported 20 years after the event. If the tax preparer had a claims-based policy, the insurer would not pay because the claim wasn’t filed in time.

What Professional Liability Insurance Covers

Errors and omissions insurance protects businesses in allegations that their mistakes, negligence, or failure caused clients a financial loss. Covered acts include misrepresentation, giving incorrect advice, and violations of good faith. This policy allows professionals to make occasional unintentional human errors without considerable financial exposure to their businesses.

For example, errors and omissions insurance typically covers claims like:

• Misrepresentation: Products, services, or features are not delivered as promised.
• Incorrect advice: Client profits are lost or other costs incurred resulting from incorrect advice.
• Violation of good faith: Any act of noncooperation with a client, such as withholding information or failing to communicate.

Clients can make claims whether they have a legal basis or not, and a lot of frivolous lawsuits are filed every year. Business owners who don’t have professional liability insurance must bear the cost of their legal defense or pay a settlement whether or not they are in error.

Depending on your particular policy, you may also have the following acts covered:

• Copyright infringement: Be it written material, logos, trademarks or software code, some errors and omissions insurance policies protect you in copyright infringement claims.
• Defamation: Some policies can cover accusations of written (libel) and spoken (slander) defamation if they stem from your professional duties.

Errors and omissions insurance can pay settlements up to policy limits, and some policies don’t include defense costs in those limits. That means a $1 million policy limit could pay a $1 million dollar settlement plus legal fees above this limit.

What Professional Liability Insurance Does Not Cover

Professional liability insurance does not cover intentional acts, so if evidence surfaces that you intended to defraud a client, your insurer will deny your claim. Additionally, many policies don’t cover gross negligence, or acts that show a reckless disregard for others.

Professional liability insurance typically does not cover the following situations:

• Intentionally illegal, dishonest, or malicious acts: Knowingly doing something wrong disqualifies claims.
• Bodily harm or damaged property: Third party slip-and-fall or other incidental accidents are covered by general liability insurance.
• Internal litigation: Lawsuit from another insured person on your policy; if another member of your business sues you, it would be covered by directors and officers (D&O) insurance instead.
• Previously claimed wrongful acts: Claims reported under a previous policy that were denied.

Depending on the policy you purchase, you may be covered for prior acts, something that happened before the policy start date. If you have a retroactive date, this provision essentially covers the business when it wasn’t insured, going back to the defined “retro date.”

Professional Liability Insurance Claim Example

Let’s say a plumber is hired to do the annual maintenance on the system connecting a home to the public sewer, and charges $159 to flush the pipes to prevent unwanted backups. Unfortunately, the plumber accidentally uses too much pressure, causing a pipe to burst, and this results in $100,000 in damage. General liability does not cover this because it directly resulted from the job activity and is only covered by professional liability insurance.

Professional Liability Insurance Costs

Professional liability insurance costs vary widely depending on the industry you work in and the amount of annual revenues you generate. A typical small business can expect to pay anywhere from $400 to $1,000 in annual professional liability premiums. Remember that insurance carriers price industries differently, so it is wise to compare offers from top carriers.

Typical Professional Liability Insurance Cost Examples

Costs are estimates based on a policy with $1 million coverage limits for a sole practitioner or independent contractor with less than $300,000 in annual revenues.

Factors Affecting Professional Liability Insurance Costs

Professional liability insurance costs are difficult to estimate because they are largely based on industry risk and the company’s revenue. The more revenue a company has, the more exposure it has to lawsuits because it does more business. More business leads to a chance that a mistake might be made inadvertently over time.

The primary factors affecting the cost of errors and omissions insurance include:

• Industry: Some industries face a greater risk of lawsuits as well as more expensive judgements and settlements because of the potential damage mistakes can cause.
• Business size: Higher revenue and more employees increase your risk of liability claims, and this pushes professional liability insurance costs higher.
• Business location: The frequency and expense of lawsuits tends to be higher in some locations than others.
• Claims history: Previous professional liability claims increase rates in subsequent years.
• Risk management: Protocols such as employee training and written contracts can reduce your chances of a claim.

Other Business Insurance for Professionals

Professional liability insurance alone doesn’t properly protect a business against the most common risks. Small business owners should have a combination of insurance products to address the specific risks they face, such as general liability insurance, workers’ compensation, and property insurance.

Commercial General Liability Insurance

Commercial general liability insurance covers third-party liability claims of bodily injury and property damage by paying the related medical bills or legal costs. Slip-and-fall accidents are one of the most common general liability claims a small business faces, but they can also face claims over accidental property damage like spilling coffee on a laptop or expensive purse.

Commercial Business Property Insurance

Commercial property insurance covers a business for its own property, including furniture, tools, equipment, and supplies. If any of these items are damaged or destroyed due to fire, theft, vandalism, or natural disaster, the insurance company pays to repair or replace them. Business property insurance is critical to maintain business operations if necessary equipment and supplies are lost.

Workers’ Compensation Insurance

Workers’ compensation insurance is required by most states to cover employees injured while on the job. Policies pay medical bills, wages from lost work time, and rehabilitation services for injured employees to help them get back to the job.

Commercial Umbrella Policy

A commercial umbrella policy adds extended liability coverage to specific underlying liability policies, such as general liability and commercial auto. If a covered claim exceeds the underlying policy’s limits, the umbrella policy pays the rest. It is a cost-effective method to add protection for one unforeseen catastrophic loss.

Business Owner’s Policy

A business owner’s policy (BOP) combines general liability, business property, and business interruption coverage into a hybrid commercial insurance policy. A BOP is often less expensive than buying each policy individually. However, BOPs don’t cover commercial auto or workers’ comp liabilities or losses.

Tips on Getting Professional Liability Insurance

The application process for most types of small business insurance is the same in terms of the process of getting multiple quotes, choosing a provider, and purchasing the policy. But when applying for errors and omissions insurance, it’s wise to address a few key points that are unique to the coverage.

Four key points to keep in mind when applying for errors and omissions insurance include:

1. Gather the Right Documents

Collect all pertinent paperwork for the professional liability insurance application, including current profit and loss and revenue statements, company legal registration paperwork, and all current written contracts and operations manuals. Insurance carriers use this data to determine the right professional liability premium.

2. Decide Between Claims-made Coverage & Occurrence Coverage

Most E&O policies are made on a claims-made basis, which means claims are only paid if your policy is active when the alleged incident first happens and when the claim is filed. Claims-made policies are generally less expensive, but you need to confirm the period the policy covers, including retroactive dates and tail coverage periods, to completely understand what you are paying for.

3. Always Have a Written Contract of Services

One of the questions every insurance carrier asks on the application is, “Do you always use a written contract?” Using a written contract clearly outlines the expectations and deliverables and is legally binding, and this helps refute unfounded claims against your professional service. Insurance carriers may ask for a copy of standard company contracts.

4. Don’t Ignore Other Risks

Since no professional liability policy covers every risk, it’s important that you review the policy with your agent or prospective insurance provider to make sure you understand what’s included and what’s not included (the exclusions). Consider general liability, cyber liability, or product liability insurance as needed by your business operations.

Professional Liability Insurance Frequently Asked Questions (FAQs)

Professional liability is a very important insurance policy that is often not given the consideration needed by professionals.

Is errors & omissions insurance included in general liability?

Errors and omissions is a specialized liability policy that is not combined with general liability because it is designed to cover professional errors, not operational accidents leading to third-party injuries or damage. Those seeking professional liability need to specifically request the coverage and obtain a policy to protect their specific business needs.

What is the retroactive date on a claims-made policy?

The retroactive date is the specified date coverage starts before the policy starts. If a business owner experiences a lapse in coverage for any reason, a claims-made policy can fill the gap if its retroactive date reaches back to the original policy’s end date. The farther the retroactive date goes, the more expensive the policy.

What is the extended reporting period?

An extended reporting period (ERP), aka tail coverage, pays claims that happened during the policy period but are reported after the policy is canceled or not renewed. Businesses can’t control when claims are reported and if no coverage exists at the time of the claim, the business is responsible. The ERP mitigates this extended risk.

Bottom Line

A professional liability policy protects professionals and service providers from claims and losses arising from mistakes in job performance or delivery. Even if a claim is frivolously made by a disgruntled customer, errors and omissions pays for not just any settlement, but also the legal defense of your good name.

Don’t risk your reputation or let honest errors lead to a financially devastating claim against your business. Professional liability insurance is a cost-effective way to protect yourself and your business. The Hartford makes getting a policy simple with a five-minute online application that reviews your risks and gets the policy written quickly.

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