Professional liability insurance

Professional liability insurance defined

Professional liability insurance is commonly known as errors and omissions (E&O) insurance. This is a special type of insurance policy that covers your business against claims made by your clients because of professional advice or a service that you offered caused financial damage to them. The financial harm may be caused due to some mistake on your part (errors) or because you did not perform some essential service (omissions).

Take for example you offered a professional service that did not suit your customer. They suffered personal and financial damages after using your offering. As a result, the customer initiates a lawsuit against your company. In such a situation, a professional liability insurance policy can help you meet expenses incurred while defending your company.

Who requires professional liability insurance?

In some cases, the law mandates it for companies to have a professional liability insurance policy in addition to other types of insurances. Most commonly, small businesses are the celebrated candidates for professional liability insurance, especially if they are in a client-facing business.

Consultant insurance, for example, is a special type of professional liability insurance that’s designed for professionals in the consultancy domain. Since consultants act as advisory bodies for their clients, they are subjected to legal risks in case they fail to meet client expectations. As such, a consultancy business requires professional liability insurance to face legal contingencies arising due to negligence or error on the part of employed consultants.

In addition to business consultants, the following professionals must also consider getting a professional liability insurance policy:

  • Engineers
  • Attorneys and legal service providers
  • Counselors
  • Accountants
  • Architects
  • Real estate agents

What does a professional liability insurance policy cover?

It’s extremely important to note that professional liability insurance is not the same as general liability insurance. While both protect the business against liabilities, there’s a big difference in the type of risks both policies cover. The following aspects are covered under a typical professional liability insurance policy:

  • Actual or alleged negligence: The policy protects your business against both actual and alleged claims of errors and omissions that may have occurred while providing professional services.
  • Legal expenses: All legal expenses incurred while defending your company such as lawyers’ fees, documentation and underwriting charges, and administrative costs are covered by professional liability insurance.

You should also know that professional liability insurance DOES NOT cover civil lawsuits. Lawsuits related to fraudulent and illegal activities are also not included in this policy. Any lawsuit associated with physical harm, property damage or data breach is outside the purview of this insurance policy.

How can a professional liability insurance policy protect your business?

The business world is quite a litigious one. News of different organizations getting embroiled in legal battles with competitors, customers, and the government are floating around on the internet like dust in the air. While there are various reasons why an organization may be pulled into a legally tumultuous phase, a professional liability insurance policy performs one very critical function—protecting your business.

Lawsuits can be a major drain on your company’s finances. Even a minor case can cost you hundreds of thousands of dollars. In most cases, the plaintiff is unrelenting, thereby dragging the case on and on. So, who’s going to pay your lawyer and other court-related expenses?

This is where a professional liability insurance policy can help you. It can protect that financial soundness of your company by meeting all your legal expenses. No matter how long or complex your case is, this policy can provide the much-needed financial support you need during such hard times.


If you have a service business, a professional liability insurance policy is a must for you. However, it would be smart to approach an expert insurance provider who can help you navigate the complexities and work out a complete cost structure by taking relevant factors of your business into consideration.