Consultants professional liability insurance protects employees and the business from potentially devastating litigation that can be caused by charges of professional negligence or failure to properly perform professional duties. This commonly includes charges of errors and omissions resulting in such acts as a loss of client data, software or system failure, claims of non-performance, or negligent oversell. There are several insurance issues consultants have to deal with in running their practices, and this article intends to highlight some common areas of concern.
Errors & Omissions (E&O) coverage is a staple in the industry
Also referred to as professional liability insurance, E&O coverage protects consultants from suits alleging poor decisions or the giving of bad advice.
- Understanding the policy language
There is no standard liability policy for consultants; rather, each insurer will generally offer its own coverage. A thorough analysis of the insurance contract is required to determine exactly what coverage is being offered. The exact definition of “wrongful act” can also affect coverage, and raise certain questions, such as:
- What is specifically excluded from coverage?
- Does the insured have the right to refuse a settlement offer in a claim?
- Does the policy pay on behalf of the insured?
- Does the policy indemnify the policyholder?
- What constitutes a wrongful act?
Professional liability coverage protects consultants from allegations of a “wrongful act” defined by most policies as “an act, error, omission, misstatement, misleading statement or neglect or breach of duty”. Policies specifically don’t cover bodily injury, property damage, and claims arising out of the use of a car, boat or plane. Also excluded are claims resulting from an employment injury or employment practice.
Those events are however covered by other policies; general liability, auto liability and workers’ compensation insurance, for example. A consultant professional liability insurance policy protects a consultant from allegations that the job was either not done right or was not done well enough to satisfy the client.
- Claims Made Coverage
Again, most liability insurance policies (general liability, automobile, workers’ compensation) pay for events that occur during the policy period. For example, an auto insurance policy will pay for an accident that occurs while the policy is in force. But a consultants professional liability policy is usually on a “claims made basis”. This means that the policy pays for lawsuits brought during the policy. Many legal actions are brought years after the actual event occurs, therefore allowing coverage to expire can jeopardize a firm’s protection.