As a professional, you’re expected to have superior training and knowledge in your area of expertise. State licensing agencies and your professional association hold you to a high standard. Errors and omissions insurance, which is also known as professional liability or malpractice insurance, covers you for claims that arise out of your professional services, including acts, the failure to act and negligence. Your errors and omissions insurance will have a stated limit of liability, which tells you how much the insurance company will spend on your behalf. Claims made and occurrence refer to the two types of errors and omissions policies.
Professional liability defends you against claims that arise from your acts, failure to act and negligence that injure your client or damage his or her property. Your errors and omissions insurance provides for your defense, and if you are found to be at fault for your client’s injury, the policy will pay damages to the injured client up to the policy limits. Some E & O policies have substantial deductibles.
What’s not covered
Errors and omissions insurance does not cover criminal acts or intentional acts. It does not cover premises liability and is not a substitute for general liability insurance. It does not cover claims within a group or business if one person wants to sue another in that same group. by one insured against another, such as a medical group where more than one doctor is covered under a single policy. Errors & omissions insurance does not cover punitive damages or fines levied by professional associations, licensing boards or state or federal agencies.
Claims Made coverage
“Claims made” means that the act causing the claim has to take place during the policy term and the claim has to be filed or “made” while the policy is in effect. If the policy is canceled, non-renewed or lapsed and a claim is reported, the claim will be denied.
Under the occurrence form of professional liability, the act leading to the claim had to have occurred during the policy term, but you can report claims after the policy has been canceled, lapsed or non-renewed. The unlimited reporting feature should be weighed against the substantially higher premiums you will have to pay. Occurrence coverage may not be available at any price to many types of professionals, such as physicians, because of the exceptionally high risk of claims and their unpredictability.
When your claims-made policy expires, lapses or is non-renewed, you’ll have the option of purchasing “tail coverage.” Tail coverage endorsements come close to turning your claims-made liability policy into an occurrence policy by giving you an extended period to report claims—generally two to five extra years.
Prior Acts Coverage
If your professional practice has purchased another firm, you may have an E & O exposure lingering from the predecessor firm’s transactions. Depending on how the purchase was structured, you may be able to purchase prior acts insurance to cover the risk you assume from the predecessor practice. You may not be able to get predecessor coverage if the majority of the merged practice’s assets were not sold to you.
Tips & Warnings
Keep at least 10 years of your expired, lapsed and non-renewed professional liability policies in a safe place, no matter what the policy form. You or your attorney may be able to find coverage in these expired policies if a claim is brought against your business.
When shopping for errors and omissions insurance quotes, keep your professional association in mind. Large groups underwritten by one malpractice insurance carrier generally have lower rates than you can find individually. Also, the insurance company has expertise in the unique needs of your profession.
Most businesses with a professional liability exposure can benefit from strict in-house controls, written standards and procedures, and in-house audits to learn how well employees and owners comply with them. Examples of businesses that can benefit from uniform procedures are lawyers, real estate agents and accountants.