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24 Jul


What is Professional Liability, and who needs it?

July 24, 2012 | By |

Professional liability insurance, also referred to as errors & omissions (E&O) insurance provides coverage for financial loss that arises out of the advice or services performed by a professional or a business. E&O claims are often the result of a client who alleges that a professional failed to provide a service that was agreed on, or provided a service that did not have the intended or promised results.

Some examples of professionals that have traditionally sought E&O protection include doctors, accountants, real estate agents, securities brokers, bookkeepers, appraisers, actuaries, title agents, and a variety of consultants. Yet, today there are many other services for which there is an E&O exposure. Advertising agencies, printers, web hosts, financial planners, personnel agencies, publishers, engineers, internet service providers, and market research companies are just a few businesses with an exposure to professional liability. Basically, anyone who provides a professional service or advice is at risk of a loss resulting from errors, negligent acts, or omissions.

Consider these examples of professional liability claims. A software provider was hired to integrate the accounting and records systems for an organization.The organization notified the provider of problems with the system and claimed that the training provided was inadequate. The provider attempted to resolve the issues, but was unsuccessful. The organization demanded that the provider pay $120,000 including the costs of the software, legal fees, research of replacement software, and installation of new software.

In another example, a real estate agent marketed herself as having expertise in residential and commercial real estate. She assisted a client in finding a home where he could also run a pest control business. However, the real estate agent was unfamiliar with the local zoning issues in the particular area where the home was located. The real estate agent encouraged the purchase of the home and the sale was made. Several months after the home was purchased, the homeowner received a notice from the city informing him that the pest control business did not meet zoning regulations. After attempting to have the property re-zoned, the homeowner brought a suit against the real estate agent and her broker for compensatory damages, lost revenue, and attorney’s fees.

Not only does a professional liability policy provide coverage for actual damages that a professional is found liable for, most policies also cover defense costs. Attorneys fees, court costs, filing fees, and costs associated with investigation could be devastating to a small business. Even if the claim is frivolous, a professional liability policy can provide coverage for the cost of defense.

If you provide a service to clients for a fee, talk to a licensed insurance professional about your exposure to a professional liability loss. Even with the best procedures in place, mistakes can be made, and mistakes are often quite costly when it comes to errors and omissions claims.


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