Professional Liability Insurance (PL), also known as Errors and Omissions (E&O), protects against mistakes or negligence that leads to financial loss. It’s often purchased with General Liability insurance. Common claims that would be covered by Professional Liability include negligence, misrepresentation, violation of good faith and fair dealing, inaccurate advice, and omissions. For this reason, it’s one of the most common coverages for consultants in any industry.
What types of businesses need Professional Liability?
In some states, professional liability insurance is required, especially for attorneys and doctors. Legal and medical malpractice insurance policies are special types of professional liability insurance. Other professionals that should consider professional liability insurance include:
- Graphic designers
- Information technology (IT) consultants
- Insurance professionals
- Investment advisors
- Management consultants
- Real estate agents and brokers
- Software developers
This list is not exhaustive. Consult with one of our insurance advisors or inquire with your profession’s trade association to determine if you might need professional liability coverage.
What’s covered… and what’s not
There are two types of professional liability policies: claims-made and occurrence. Claims-made is the most common type of professional liability policy. With a claims-made policy, the policy must be in effect at the time the claim arises and the work that caused the claim must have occurred after the retroactive date of the policy.
For example, if Bob Jones CPA has a claims-made policy with a retroactive date of 01/01/2020, and a policy coverage period of 06/01/2020 – 06/01/2021, and a claim arises on 12/01/2020 from work completed prior to 01/01/2020, the claim would not be covered due to the work being prior to the retroactive date. Alternatively, if the claim arises on 12/01/2020 from work completed on 02/01/2020, the claim would be covered. The claim was filed during the policy period and the work was completed after the retroactive date.
If you are planning to change careers, or retire, you may want to purchase an extended reporting period – which is offered on every claims-made professional liability policy. An extended reporting period gives you an extended amount of time to file a claim, after the claims-made policy has expired. The reported period can be anywhere from 1-3 years. Ask your Bunker insurance advisor to check your policy to know your options.
An occurrence professional liability policy is rare as most carriers have switched to claims-made policies but, there are still some companies who offer coverage on an occurrence-basis. An occurrence-based policy requires coverage to be in effect at the time the work was done that caused a claim but, the coverage does not need to be in effect at the time the claim is filed.
For example, if Bob Jones CPA had an occurrence-based policy from 01/01/2018 – 01/01/2019 and a claim arises on 06/01/2020 from work completed on 02/01/20218, the claim would be covered. Alternatively, if the work was completed on 12/31/2017, the claim would not be covered since the policy was not yet in effect.
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