Professional liability — also sold as errors and omissions, or E&O — covers the thing general liability specifically will not: being sued because your work was wrong. If you are paid for expertise, judgement or a deliverable, this is usually the policy that matters most, and it is the one most often missing.
Ryan Hearn is a licensed insurance producer in California. This article is educational and is not a recommendation to buy any specific policy. Insightful Coverage is an independent publisher, not an agency, broker or carrier.
What it responds to
Claims that you made a professional mistake, gave bad advice, missed a deadline, or failed to deliver what you promised. The client’s loss is financial rather than physical, which is exactly why general liability does not apply — nobody was injured and no property was damaged.
- An accountant files something late and the client incurs a penalty.
- A consultant’s recommendation costs the client money to unwind.
- A designer misses a launch date written into the contract.
- A developer ships code that loses data.
- An agency uses an image the client did not have rights to.
As with general liability, defence costs are usually the point. Most professional liability claims are disputes about whether the work was adequate, and those are expensive to argue even when you are right.
Claims-made, and why the date matters more than you expect
This is the most important structural difference between professional liability and general liability, and it is routinely misunderstood.
General liability is usually written on an occurrence basis: if the incident happened while the policy was live, it responds, even if you report it years later. Professional liability is usually written on a claims-made basis: it responds only if the claim is made against you while the policy is live.
- The retroactive date sets how far back your past work is covered. Buy a new policy with today’s retroactive date and last year’s work is unprotected.
- Continuous cover matters. Letting a claims-made policy lapse can leave a gap for everything you did while insured, because there is no live policy for the claim to be made against.
- Extended reporting, sometimes called tail cover, is what you buy when you stop trading or switch insurers, so claims arising from past work can still be reported.
If you take one thing from this article, take this: ask what the retroactive date is before you switch or cancel a professional liability policy.
Who needs it
Anyone selling advice, design, analysis or a professional service — consultants, accountants, bookkeepers, architects, engineers, IT and software firms, marketing agencies, recruiters, and most licensed professions. Some clients require it contractually before they will engage you, and some licensing bodies require it outright.
It is also worth considering if you are a sole trader who thinks the risk is small. The exposure is not the size of your business; it is the size of the client’s loss.
Related reading
- General liability insurance — the policy this one sits alongside, and the gap it leaves.
- Employment practices liability insurance — the cover for employment claims.
- Directors and officers insurance — cover for decisions made at board level.
- Best business insurance providers — carriers that write professional lines.
