Professional liability insurance protects business professionals and their companies against claims due to professional errors, mistakes, negligence, or omissions. Unfortunately, professional liability coverage forms aren’t always straightforward, and policy terms and exclusions can look different from one insurance company to the next. Overlooked or misunderstood policy exclusions can result in unwanted surprises. No insured wants to make a claim only to have it denied by their insurer because it doesn’t fall within the bounds of the policy.
Professional Liability in a Nutshell
Professional liability includes coverages such as errors and omissions insurance (E&O), directors and officers insurance (D&O), employment practices liability insurance (EPLI), and cyber liability. These types of business insurance policies are essential for business owners and professionals who provide specialized services or advice — such as doctors, lawyers, accountants, consultants, architects, engineers, real estate brokers, and others. In these types of professions, mistakes and oversights can have significant impacts, resulting in financial loss, physical injury, property damage, or reputational harm to clients or third parties.
Professional liability coverage helps safeguard the insured’s assets and reputations while ensuring they can continue to provide their professional services without being financially devastated by a lawsuit. Typically, professional liability insurance covers the cost of legal defense, settlements, judgments, and other claim-related expenses, up to the policy’s limits.
Notable Professional Liability Exclusions
Although professional liability coverage exclusions can differ depending on the insurance company and policy, here is a list of common exclusions to be mindful of:
- Intentional wrongdoing: Professional liability coverage is intended to cover situations where someone has failed to deliver appropriate services out of negligence or error in judgment. Insurers will not cover claims if the insured acted intentionally. If a professional knowingly provides bad advice or knowingly deceives their client, for example, and the client sues, their professional liability policy will not cover legal fees, settlements, or other related costs.
- Discrimination: Professional liability policies won’t cover situations related to discrimination on the basis of race, creed, national origin, disability, religion, sex, age, marital status, or sexual preference.
- Sexual abuse: Over the the past few years, cases around sexual abuse in the workplace have sharply risen. This has highlighted a major gap in professional liability insurance policies. Most explicitly state that allegations related to sexual assault and physical abuse are not covered. (It’s worth noting, however, that if the claim is unfounded, and the insured does not admit any guilt, the insurance carrier may offer defense coverage.) Due to the unfortunate prevalence of sexual misconduct in the workplace, many companies carry sexual misconduct and molestation liability (SMML) insurance coverage specifically for these circumstances.
- Employment-related claims: This exclusion denies insurance coverage for any claims related to any employment disputes. This can include wrongful termination, discrimination, failure to promote, demotion, reassignment, or disciplinary action. Let’s say an architect at a large firm is fired and decides to sue his former employer for wrongful termination and intentional infliction of emotional distress. The architecture firm’s professional liability policy would not cover this claim and the resulting costs — but their Employment Practices Liability Insurance (EPLI) policy should.
- Pollution and environmental liability: A rising concern for the environment and a growing list of known pollutants have resulted in costly lawsuits that few companies are adequately prepared for. However, pollution and environmental exposures are unfortunately not covered under professional liability policies. While there may be some coverage offered under a company’s commercial general liability policy, it’s better to consider a separate policy specifically written with environmental risks in mind.
- Criminal acts: Somewhat similar to intentional wrongdoing, claims resulting from criminal acts or illegal activities are generally excluded from professional liability insurance coverage. Let’s say a real estate agent neglects to renew his license, but continues to work with a client on the sale of their home. He unintentionally fails to disclose some important information about the property, and the buyer later sues. Because the agent was working illegally without a current license, his insurance company denies the claim to his professional liability policy.
- Bodily injury or property damage: Professional liability insurance policies don’t cover bodily harm or injury caused by the professional or their business. If a client slips on an unattended spill in their tax accounting firm’s lobby, their accountant’s general liability policy would typically be responsible for covering costs due to any injuries or damage. If one of the firm’s CPAs also slipped on the spill, that would fall under the firm’s worker’s compensation policy.
- Prior knowledge: Some policies may exclude coverage for claims related to incidents that the insured knew about before the policy’s effective date or retroactive date. Let’s say a commercial real estate broker discovered they unintentionally gave one of their clients some poor advice in January that resulted in their client losing out on an important deal. In March, the real estate agent moved their professional liability policy to another insurance company. In May, their client decided to sue them for negligence. The real estate broker’s new insurance company denies their claim because the broker knew about the issue prior to taking out their policy.
- Intellectual property infringement: Claims arising from the unauthorized use of someone else’s intellectual property, such as copyright or trademark infringement, may be excluded. For example, a website designer mistakenly uses a copyrighted image on his client’s website. The owner of the image sues the client, who, in turn, holds the web designer responsible. The web designer submits a claim to their professional liability policy, but it gets denied because intellectual property infringement is listed as an exclusion on the policy.
- Claims outside the coverage territory: Some policies may specify certain geographic limitations, which means the insurer will not protect against claims that occur outside the designated coverage territory. For instance, a family counselor in Georgia may have just received her license to also offer virtual sessions to clients in Texas. However, she neglected to update her professional liability coverage, which has a coverage territory limited to Georgia. One of the counselor’s clients in Texas sues, claiming she gave them bad advice that resulted in a divorce. The counselor’s insurance company can deny coverage for attorney fees and other related expenses, because the counselor was providing services outside of the policy’s coverage area.
The Devil Is in the Details
Professional liability isn’t a generalist’s game. Partnering with a wholesaler who specializes in professional lines insurance is key to ensuring that your clients get the best coverage possible — and that you, as the retail broker, avoid unwanted claims to your own errors and omissions (E&O) policy.
It’s always important to carefully review any insurance policy, but for business insurance like professional liability, it’s critical. According to Michael De Feo, Senior VP of Jencap Speciality Insurance Services and professional lines expert, “The devil is in the details — exclusions can be easy to overlook.”
Unlike other types of insurance products, there are no ISO forms for professional liability, so unless you know what you’re looking for, it’s easy to miss coverage gaps and ambiguous exclusions. De Feo explains, “When it comes to professional liability, each insurance company’s policy is fairly unique. In the traditional insurance world — the property and casualty world — where most of the insurance market is, a lot of those policies are standardized. You may have ten insurance companies using the same exact wording. So if you have a quote from two insurers, there’s no real coverage-comparing to do. However, with professional lines policies — D&O, cyber, professional liability — no two policies are alike. So you have to compare these policies and their coverage on a case-by-case basis.”
Work with Professional Liability Experts
Don’t get tripped up by the complexities of professional liability and other professional lines coverages. Jencap’s dedicated team of professional lines experts knows exactly what to look for when reviewing professional liability policies, so you can feel confident that your clients are getting the best coverage, at the best price. Contact Jencap to speak to one of our professional liability specialists and get a quote.