Professional liability

Professional liability protects a business that sells advice, expertise or services when a client says the work was negligent, late or incomplete and the mistake cost money. The wrong is usually an error, omission or failure to perform, and the harm is typically financial rather than bodily injury or property damage. That is why a general liability policy often does not answer: it responds to bodily injury and property damage, and many carriers attach professional services exclusions to it.

Names vary by trade. Doctors and lawyers buy malpractice cover, while consultants, agents, architects, accountants and software firms buy errors and omissions. Most forms are claims-made: the claim must be made and reported during the policy period, and the act must fall after the retroactive date. Defense costs commonly sit inside the limit, so they shrink what is left to settle the claim, and many forms carry a consent-to-settle, or hammer, clause.

Say a bookkeeping firm misses a client's tax filing deadline, and the client sues for the resulting penalties. A professional liability policy is the coverage built for that claim. Contracts, lenders and licensing boards often require it. The pitfall is scope: the policy covers only the services described, so report a new service line before a claim arrives. The guide on Professional liability (E&O) insurance explained explains the form in detail, and errors and omissions covers the non-medical version.