A vital coverage for many professional firms and organizations is professional liability, or errors and omissions (E&O), insurance. This insurance provides financial protection against a variety of claims arising from an error and omission due to the insured’s negligent performance.
The coverage typically is structured to provide reimbursement for an insured professional or entity’s legal defense costs as well as to pay the costs associated with any damage awards and settlements. Because the policy can address these various costs, buyer of this coverage need to make careful and informed decisions with respect to the adequacy of their policy limits. For example, a costly defense could exhaust a policy’s limits, leaving little additional insurance proceeds to pay the cost of a settlement or award.
A number of insurers offer professional liability policies with a variety of optional features. For example, some policies for architects and engineers can be structured to provide extended protection for risks associated with LEED certification, punitive damages (where permitted by law), acquisitions, pollution exposures, as well as to extend reporting periods for covered claims and to provide credits when mediation is used to resolve claims.
Nearly all professional liability policies issued today are underwritten on a “claims-made” basis, meaning that coverage is restricted only to claims made during the policy period. Underwriting is based on a variety of factors that form the risk profile of the insurance buyer, including prior loss history, recent and anticipated merger and acquisition activity, and an evaluation of the scope and nature of work of the entity seeking the coverage.