Understanding Professional Liability Insurance Policies: A Guide for Policyholders

Professional liability insurance, also known as errors and omissions insurance, is a critical safety net for professionals in various industries. It provides coverage for claims against businesses that provide professional and personal services. Understanding these policies is crucial for safeguarding your career and financial stability. Let’s explore how they work and how to understand them. 

Overview of Professional Liability Insurance

Professional liability insurance, also known as professional malpractice or errors and omissions (E&O) insurance, is a type of insurance coverage designed to protect professionals and businesses against liability incurred as a result of errors and omissions in performing their professional services. 

This insurance is particularly important for individuals and entities that provide services or advice to clients, as it covers them in situations where a client alleges that they have suffered financial loss due to the professional’s negligence or inadequate work.

In general, these policies cover legal defense costs and damages for claims that a professional was negligent in their services, provided incorrect advice, or failed to deliver services as promised. The policy typically includes the cost of defending against a lawsuit, regardless of the outcome of the case. It likely also covers settlements or judgments that may be awarded to the client up to the policy limits.

Types of Professional Liability Insurance

Professional malpractice insurance comes in various forms, each tailored to the specific risks and needs of different professions. Here are some of the most common professions that benefit from this coverage:

• Medical Malpractice: Designed for healthcare professionals, this insurance covers liability arising from patient treatment. It’s essential for doctors, nurses, dentists, and other medical practitioners.
• Legal: This is for legal professionals, including lawyers and legal firms. It covers liabilities due to errors, omissions, or negligence in the provision of legal services.
• Architects and Engineers: This caters to professionals in the design and construction industry, covering errors, omissions, or negligence in design, planning, supervision, and construction.
• Accountants: For accountants, auditors, and financial advisors, this insurance covers liabilities arising from errors in financial services, such as tax preparation, auditing, and financial planning.
• Technology Professionals (Tech E&O): Aimed at IT professionals, software developers, and tech companies, it covers liabilities from software errors, data breaches, and system failures.
• Consultants: For consultants across various industries, it covers liabilities due to errors or omissions in the advice or services provided to clients.
• Real Estate: Essential for real estate agents and brokers, covering liabilities due to errors or omissions in real estate transactions.
• Directors and Officers (D&O): This covers the personal liabilities of directors and officers of a company for decisions and actions taken as part of their managerial roles.

Each of these insurance types is designed to address the unique exposures of different professional services, providing a safety net against the financial implications of lawsuits and claims. Professionals need to choose the type that best fits their specific line of work and associated risks.

Understanding Your Professional Liability Policy

Understanding a professional liability insurance policy requires a careful review of several key elements. These policies can be complex, but breaking them down into their basic components can help you grasp the coverage and limitations. Here’s a guide to understanding your liability insurance policy:

• Coverage Scope: Determine what types of claims the policy covers. Commonly, it includes negligence, errors, omissions, and sometimes, personal injury claims arising from your professional services.
• Policy Limits: Identify the policy limits, which indicate the maximum amount the insurer will pay under the policy. There are typically two types of limits: per-claim and aggregate.
• Deductibles: Understand your deductible and the amount you need to pay out of pocket before the insurance coverage kicks in. Higher deductibles can lower your premium but increase your financial responsibility in a claim.
• Exclusions: Familiarize yourself with what the policy does not cover. Exclusions can include intentional wrongful acts, fraudulent acts, and sometimes claims related to services provided before the policy period or after its expiration.
• Claims-Made vs. Occurrence Policies: Claims-made policies only cover claims filed during the policy period or within a set time after its expiration, while occurrence policies cover any incident that occurred during the policy period, regardless of when the claim is filed.
• Retroactive Date: If it’s a claims-made policy, check the retroactive date. This date determines the earliest incident for which a claim can be made.
• Tail Coverage (Extended Reporting Period): This is an extension that allows you to report claims after your policy has expired, as long as the incident occurred while the policy was active.
• Consent to Settle: Some policies include a “consent to settle” clause, which means the insurer must obtain your consent before settling a claim.
• Defense Costs: Ascertain how defense costs are covered. In some policies, legal defense costs are within the limits of liability (eroding the limits), while in others, they are outside the limits.
• Additional Coverage: Look for any other coverages or endorsements that may apply, such as coverage for disciplinary proceedings, subpoena assistance, or data breach liability.
• Policy Period: Note the effective dates of your policy to ensure continuous coverage.

By thoroughly reviewing these elements, you can gain a better understanding of your liability insurance policy, ensuring that you have the appropriate coverage for your professional risks.

Dealing with Coverage Denial

Insurance companies sometimes deny claims. Here’s what you can do:

1. Review Your Policy: Understand why your claim was denied. It could be due to a policy exclusion or a misunderstanding.
2. Gather Documentation: Collect all relevant documents and evidence related to the claim and your policy.
3. Appeal the Decision: You can formally appeal the insurance company’s decision.
4. Legal Consultation: Consult with a professional malpractice attorney. They can review your case and advise on the best course of action.
5. File a Complaint: If necessary, file a complaint with California’s Department of Insurance.

Understanding your professional liability insurance policy is crucial. Regularly reviewing your policy, staying informed about its specifics, and knowing your rights can protect you against unwarranted claim denials. In case of disputes, don’t hesitate to seek legal advice to ensure your professional interests are adequately protected. Reach out to the experienced skilled liability defense attorneys at Furukawa Castles LLP to learn more about how we can help you.