What Does Professional Liability Insurance Cover?

Professional liability insurance can cover claims that your work or advice caused a client to lose money. It's also called errors and omissions (E&O) insurance. Consultants, accountants, designers, IT pros and many other service businesses carry business professional liability insurance because one unhappy client can lead to a costly lawsuit, even when the work was done right.

What Is Professional Liability Insurance?

Professional liability insurance can cover claims that your work caused a client to lose money. It's also called errors and omissions (E&O) insurance. In medicine, it's called malpractice insurance. Outside the U.S., it's often called professional indemnity insurance.

It can cover claims of:

1. Negligence, or a mistake in your work
2. Errors or omissions in a service you provided
3. Bad or incomplete advice
4. Missed deadlines that cost a client money
5. Misrepresenting what you would deliver

Coverage can help cover attorney fees, court costs and settlements. It can help even if the claim has no merit.

What Isn't Covered by Professional Liability Insurance?

Professional liability usually doesn't cover:

1. Injuries and property damage: A client who trips in your office is a general liability claim.
2. Data breaches: Breach response costs, like notifying customers, usually fall under cyber liability insurance.
3. Employee injuries: These fall under workers' compensation.
4. Intentional or criminal acts: Fraud and knowingly breaking the law are excluded.
5. Work done before your retroactive date: See claims-made policies below.

Every policy is different. A licensed partner can explain what yours includes.

Who Needs Professional Liability Insurance?

Many people who give professional advice or services carry professional liability. Some carry it because a license, a client contract or an employer asks for it. Doctors and lawyers are common examples.

Other professions that often carry it include:

1. Consultants and business advisors
2. Accountants and bookkeepers
3. Real estate agents and brokers
4. Architects and engineers
5. IT pros, developers and web designers
6. Therapists and counselors
7. Marketing and design agencies
8. Insurance agents, appraisers and travel agents

Professional Liability for Medical Professionals

For doctors, nurses, dentists and chiropractors, professional liability is usually called malpractice insurance. Lab and medical testing staff often carry it too. Because patient injury is a risk in these jobs, many employers and states ask for this coverage. Learn more about medical malpractice insurance and dental malpractice insurance.

Professional Liability for Consultants

Consultants, insurance adjusters, realtors and appraisers often carry errors and omissions (E&O) insurance. E&O can cover claims of real or alleged mistakes in their work. See professional liability insurance for consultants.

Professional Liability for Technology Businesses

Policies are often written for a specific industry. Tech companies, developers, web hosts and software firms can get coverage built for their work. Some policies add options like data breach, intellectual property or breach of warranty coverage. See IT insurance.

What Does a Professional Liability Claim Look Like?

Mistakes happen, even to careful professionals. And anyone can file a claim, even one with little to do with you. Lawsuits can take months or years to end, and defense costs can add up even if you win. One large claim can hurt a small business. Professional liability can help cover these costs so you can keep working.

Example #1: You run a consulting firm. A client follows your advice but puts it into practice the wrong way. They lose income and sue you. Professional liability can help cover your defense costs.

Example #2: You build a website for a client. Later, the site is hacked and customer data is exposed. The client says your work was at fault. Professional liability can help cover your defense and a settlement. Breach costs, like notifying customers, usually fall under cyber liability insurance.

Example #3: You're a real estate agent. Your client moves in, and a pipe bursts the same day. They sue you, but their contract shows they waived the inspection. You may win in court. Professional liability can still help cover your defense costs.

Example #4: You're an accountant. A client finds an error in their books that cost them money. Professional liability can help cover the damages and your legal costs.

General Liability vs. Professional Liability: What's the Difference?

General liability and professional liability can cover different kinds of claims.

General liability can cover claims of third-party bodily injury, property damage or personal injury. For example, a client slips and falls in your office.

Professional liability, also called errors and omissions insurance, can cover claims that your work or advice caused a financial loss. For example, a client says your advice cost them money.

Many businesses carry both. A licensed partner can explain which ones apply to your work. See our full guide to general liability vs. professional liability.

Is Professional Liability Insurance Required?

There's no federal law that requires most businesses to carry professional liability. But some licensing boards and states require it for certain professions, especially in health care, law and finance.

More often, the requirement comes from a contract. Many clients, landlords and employers ask for proof of professional liability before you start work. Rules vary by profession and state, so check with your licensing board. A licensed partner can explain what applies to your business.

How Much Professional Liability Coverage Do Businesses Carry?

A professional liability policy usually has two limits:

1. Per-claim limit: The most the policy pays for one claim.
2. Aggregate limit: The most the policy pays for all claims during the policy period.

Many small businesses start with $1 million per claim. Client contracts often set a minimum limit. On some policies, defense costs count against your limits, which can leave less for a settlement. A licensed partner can explain the limits and deductible options for your work.

What Are Claims-Made Policies and Retroactive Coverage?

Most professional liability policies are claims-made. That means the claim must be filed while your policy is active.

A retroactive date can extend coverage to work you did before the policy started. Not every policy includes one.

If you cancel or switch policies, ask about an extended reporting period, also called tail coverage. It lets you report claims after the policy ends, for work done while it was active. Without it, a later claim may not be covered.

How Much Does Professional Liability Insurance Cost?

There's no single price. The cost depends on your work and your risk.

Common factors include:

1. Your industry and the services you offer
2. Business size and yearly revenue
3. Years in business and claims history
4. Number of employees
5. Coverage limits and deductible
6. Where you operate

Learn more in our professional liability insurance cost guide.

How does Tivly match me with a licensed partner?

Tivly matches small businesses with 450+ licensed partners in all 50 states. It's free to use. Complete the form at the top of the page, and a Tivly specialist will reach out to match you with a licensed partner. Or call 877-907-5267 to speak with a representative.

Reviewed By: Sarah Reid, Licensed Agent