Professional Liability – Errors & Omissions Insurance

Liability & Insurance 750

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In today’s insurance markets the terms “professional liability insurance” “errors & omissions insurance” and “malpractice insurance” are used interchangeably, although “malpractice” is usually reserved for attorneys and medical professionals.
Toolkit explanation of Professional Liability Insurance

Each carrier drafts its own policy language.
ISO has some professional liability forms, but insurers seldom use them.
There are substantial differences in the definition of “insured”, exclusions and scope of coverage.

Policies are subject to a per claim, per occurrence, per medical event, or per wrongful act limit, as well as an annual aggregate.
Defense costs usually reduce the limits. Example: if there is a $1M limit per claim and the insurer spends $50K for defense, there is only $950K available to pay damages.
Almost all policies have a self-insured retention.
SIRs can range from $2,500 for sole proprietors to over $1M for large, international entities.

Most professional liability policies exclude contractual liability insurance. This does not void or invalidate the consultant’s obligation to indemnify us. It means that the consultant can’t pass the cost on to the insurer; the indemnification must be funded from the consultant’s own resources.
Some policies exclude contractual liability insurance, but insurers will consider adding contractual liability insurance for specific agreements.
A few policies cover it automatically.

Our standard Templates do not require additional insured status because:
- Most insurers refuse to do it.
- Consultants push back on the requirement because more insureds erode the policy limits.
- Professional liability policies exclude inter-insured suits. If we are an additional insured on the consultant’s policy and bring suit against the consultant, the consultant will not be covered if we are additional insureds.
Occasionally we can get additional insured status on a consultant’s policy. Before accepting it we should evaluate the exposure because the consultant won’t be insured if we are the party seeking damages. We may want to accept additional insured status if the higher risk might result from our being sued by a third party, rather than from our bringing suit against the consultant. Example: we contract with physicians’ placement agency which provides malpractice insurance to the doctors sent to us on a temporary basis. We are able to be endorsed as additional insureds and we accepted additional insured status because our greatest risk is from suit by citizens treated by the physicians. We are not likely to sustain direct harm from the physicians’ medical errors.

The coverage trigger is the date on which the claim is made, not the date on which the wrongful act was committed. The claim must be made during the policy period, even if the wrongful act was committed before the inception of the policy.
Each policy has a slightly different definition of making a claim. Examples:
- written demand or notice received by an insured;
- demand for money or money damages received by the insured.
In many cases we don’t discover problems with a consultant’s work until after the project is completed or the agreement has terminated. Because many professional liability claims are made after work is complete, we require consultants to continue professional liability insurance for a period of time after the work is done.