Professional Liability Insurance

Who needs it

Any business whose product is expertise rather than a physical good. In the Puget Sound market that includes:

• Technology consultancies, software developers and managed IT providers
• Architects, engineers and land surveyors
• Design, marketing and advertising agencies
• Accountants, bookkeepers and financial consultants
• Staffing and recruiting firms
• Management and business consultants
• Property managers and real estate brokerages, which have their own specific exposures. See Real Estate E&O Insurance

If a contract you sign includes an indemnity clause or requires you to carry professional liability, that requirement is telling you something about how your client sees the risk.

What it covers

The core of the policy is defense. Most E&O claims never reach a verdict, and the money is spent proving the work was competent rather than paying damages. A policy that responds early is doing its job even when you did nothing wrong.

Typically covered:

• Defense costs and legal fees
• Judgments and settlements
• Allegations of negligence in performing professional services
• Misrepresentation and inaccurate advice
• Failure to deliver a service as promised
• Missed deadlines that cause a client financial loss

Terms vary by policy and by carrier appetite, so treat this as the shape of the coverage rather than a description of any specific contract.

What it does not cover

This is where most disputes start.

• Bodily injury and property damage. That is general liability.
• Deliberate wrongdoing. Fraud and intentional acts are excluded. Defense is often provided until an act is proven intentional, then withdrawn.
• Work you have not been paid for. Fee and commission disputes are usually outside the policy.
• Employment claims. A claim by your own employee belongs to employment practices liability, not E&O.
• Cyber and data breach. Related but separate. Some policies bolt it on and many do not.
• Warranties you made that no reasonable professional could meet. Promising a specific business outcome in a contract can put the resulting claim outside coverage.

Claims-made, and why the dates matter more than the limit

Almost all E&O is written on a claims-made basis. This is the part worth understanding before you buy.

A claims-made policy responds to claims reported during the policy period, not to work performed during it. Two dates control whether it responds at all.

The retroactive date. Work performed before this date is not covered, no matter when the claim arrives. A policy with a retroactive date matching your first day in business covers your full history. One dated to today covers nothing you have already done.

The extended reporting period, or tail. Claims often surface years after the work. If you cancel, retire or sell the business, coverage stops with the policy unless you buy a tail. Without one, a claim arriving six months after you close has nothing to respond to it.

The practical consequence: switching carriers to save premium can quietly erase years of prior acts coverage if the new policy resets the retroactive date. Ask what the retroactive date is before you move. It is the question people wish they had asked.

Limits, deductibles and defense

Two structural details change what a policy is actually worth.

Defense inside or outside the limit. If defense costs erode the limit, a long dispute can consume most of the coverage before a settlement is reached. If defense sits outside the limit, the full limit remains available for damages. The second is better and usually costs more.

Deductible per claim or aggregate. Several small claims in one year land very differently under each.