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PROFESSIONAL LIABILITY (E&O)

Professional Liability (E&O) Insurance Explained

Professional Liability Insurance (also known as Errors and Omissions Insurance, or E&O Insurance) is a type of coverage that protects professionals and businesses against claims of negligence, errors, or omissions made while providing services or advice to clients. It covers the legal defense costs and any settlements or judgments if the insured is sued for failing to meet the standard of care expected in their profession.

General Coverages

Pursuant to your particular policy language, coverage provisions, and exclusions; Professional Liability (E&O) policies can include coverage for:

  • Negligence – Protects professionals if their negligence leads to client losses, such as a failure to deliver services with the proper level of care or skill.
  • Errors and Omissions (E&O) – Covers mistakes or omissions made during the course of providing professional services, such as errors in advice, calculations, or deliverables.
  • Breach of Duty – Protects against claims related to failing to meet contractual obligations or perform duties as expected within professional standards.
  • Misrepresentation – Covers claims where false or misleading statements (intentional or unintentional) are made by the professional that cause damage to clients.
  • Defamation – Protects against defamation claims made by third parties who allege that the professional made false statements that damaged their reputation.
  • Infringement of Intellectual Property – Protects against claims involving unintentional infringement of intellectual property, such as copyright, patent, or trademark violations during professional services.
  • Loss of Documents/Data – Covers the loss, damage, or theft of important documents, files, or data while being handled or stored by the professional.
  • Defense Costs – Covers the legal defense costs, including attorney fees, court costs, and other related expenses in the event of a lawsuit, even if the professional is not found liable.
  • Settlement Costs – Covers the costs associated with settling a lawsuit, including settlement amounts or judgments that the professional may be required to pay to resolve the dispute.

Claims Scenario

John, a senior financial advisor with 15 years of experience, is responsible for managing several client portfolios. One of his clients, Mrs. Thompson, is nearing retirement and seeks John’s advice on how to invest her savings to ensure a stable income for her retirement years.

After analyzing her financial situation, John recommends a high-risk investment strategy involving stocks in emerging markets, believing that it has the potential for high returns.  John also provides her with projections showing potential returns on the investment.

However, a few months later, due to unforeseen market fluctuations, the value of the stocks plummets, resulting in a significant financial loss for Mrs. Thompson.

Mrs. Thompson files a lawsuit against John, claiming that he negligently recommended a high-risk investment that was inappropriate for her financial goals and risk tolerance. She asserts that John failed to provide adequate risk warnings and did not properly evaluate her financial situation before making the recommendation.

How E&O Insurance Helps:

John’s Professional Liability Insurance covers the legal defense costs associated with the lawsuit. The insurance policy pays for the attorney’s fees, court costs, and other legal expenses, which total $75,000 in this case.

After a lengthy legal battle, both parties agree to a settlement. John agrees to settle the case for $100,000 to avoid prolonged litigation and potential reputational damage. The settlement covers the financial losses claimed by Mrs. Thompson. The policy also covers the costs of settlement.

Contact CastleWise to discuss Professional Liability (E&O) insurance coverage.