A professional liability policy, also commonly referred to as errors and omissions insurance, covers instances of negligence and the costs of any resulting claims. This is most applicable in industries that provide professional advice or services, and it functions in a slightly different way than general liability insurance.
Just because you have professional liability insurance doesn’t mean you’re fully protected in any eventuality, however, and so it’s important that you know exactly what your policy covers and how you can avoid having claims denied.
Claim Coverage and Reporting Details
One common area of confusion when it comes to professional liability insurance coverage is the timing of the wrongful act, or reason for the claim, in relation to the policy period. Unlike general liability policies, professional liability policies only cover claims made when the policy was in effect, even if the wrongful act occurred before that date.
However, most policies stipulate a retroactive date, beyond which they do not cover. In short, a claim will be covered if the precipitous act occurred after the retroactive date and the claim was first made within the active policy period.
Another complicating factor, however, relates to what constitutes the bringing of a claim. Most policies don’t require that there actually be a demand for damages made, but that there is knowledge of a situation that could lead to a suit being filed. That means that as the insured, you need to report to your insurer any such situation. The failure to report this is a common reason professional liability claims are denied.
Contractual Liability Issues
Another potential sticking point involves contracts you may enter into when you take on a new project. It’s important that you don’t assume any more liability under a contract than you are legally obligated to, as that extended liability opens you up to lawsuits that will not be covered by your professional liability insurance. It’s common, however, for contracts to be written in this way to pass off as much liability as possible to the provider, and so you need to make sure you’re not voiding your insurance protection when you sign a contract for a new job.
Breach of contract suits are not generally covered under your professional liability coverage either, and so you need to make sure you don’t sign a contract promising something you don’t have a reasonable expectation of being able to deliver.
For all of these reasons, it’s important to read your professional liability insurance policy closely. This will help you understand your own reporting obligations, and it will help you avoid entering into contracts that could void your coverage. If you’d like to learn more about the professional liability policies we offer, contact our offices today.
