Professional liability insurance
Professional liability insurance protects a professional or business against covered claims that an error, omission, negligence, or wrongful act in providing professional services caused financial loss, bodily injury, or property damage. It can pay defense costs, settlements, or judgments up to the policy limits, and it is also called errors and omissions or malpractice insurance.
Also called: errors and omissions, e&o, errors and omissions insurance, malpractice insurance, professional liability
This is the policy that responds when a client says your advice, judgment or work product cost them money. It is a different policy from general liability, and whether a particular claim is covered depends on the policy's limit, deductible, exclusions, retroactive date and whether it is claims-made or occurrence. Check the declarations page and the full policy form before relying on a quote or a certificate. Medical versions are commonly called malpractice insurance, and insurers commonly use "errors and omissions," or E&O, for nonmedical professional services, as in the NAIC glossary (opens in a new tab).
How a claim adds up
Connecticut sets a minimum for physicians, which makes a clear example. Conn. Gen. Stat. § 20-11b (opens in a new tab) requires a physician providing direct patient care to carry at least $500,000 per person, per occurrence, with an aggregate of at least $1.5 million. The settlement, defense cost and deductible below are illustrative.
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| Step | Amount |
|---|---|
| Covered settlement | $300,000 |
| Covered defense costs | $100,000 |
| Total covered claim expense ($300,000 + $100,000) | $400,000 |
| Remaining per-occurrence limit ($500,000 minus $400,000) | $100,000 |
| Remaining annual aggregate, if this is the only claim ($1.5 million minus $400,000) | $1.1 million |
| With a $10,000 deductible: you bear / the insurer pays | $10,000 / $390,000 |
Other covered claims in the policy year reduce the remaining aggregate.
Options and amounts that change what the policy does
- Claims-made: The policy responds when the claim is made and reported during the policy period, subject to the retroactive date and any extended reporting period. A lapse or a switch of insurers without prior-acts coverage or an extended reporting period can leave earlier work uninsured, and either option can add cost.
- Occurrence: The policy responds when the covered act or event happens during the policy period, even if the claim comes later, according to the NAIC (opens in a new tab).
- Limits: A per-occurrence limit caps payment for one claim, and an aggregate limit caps covered claims for the policy year.
- Deductible or self-insured retention: The stated amount of each covered loss shifts to you. A higher deductible generally lowers what the insurer pays on a claim and may lower the premium, though the effect varies by policy.
Where you will see it
Professional liability appears as a standalone E&O, malpractice or professional liability policy, as a coverage part in a professional package policy, or as an endorsement to some businessowners or other commercial policies. A client contract, license application, hospital privileges agreement or government contract may require it. A standard businessowners policy typically does not include liability for wrongful professional practices, and standard personal auto, homeowners, renters, life, health and pet policies do not ordinarily include it, as the NAIC (opens in a new tab) explains. See what insurance a small business needs for the other business coverages.
On paper, a quote shows limits, deductible, retroactive date, premium and form type, and the declarations page identifies the insured, policy period, limits and deductible. The insuring agreement, exclusions, conditions and endorsements define the actual protection. A renewal notice can change the retroactive date or reporting terms.
The line between this policy and general liability is the source of the claim. General liability addresses bodily injury, property damage, personal injury and advertising injury from business premises or operations, while professional liability addresses errors, omissions, negligence or failure to perform a professional service. A customer who slips in an office presents a general liability claim, and a customer who says an accountant's advice caused a financial loss presents an E&O claim. See general liability vs professional liability insurance for the comparison.
What Connecticut and New York change
In Connecticut, Conn. Gen. Stat. § 38a-393 (opens in a new tab) defines professional liability insurance for physicians and surgeons, hospitals, lawyers, dentists, architects and engineers, chiropractors, licensed naturopaths, podiatrists, advanced practice registered nurses, physical therapists, massage therapists and other categories added by regulation. Under Conn. Gen. Stat. § 38a-394 (opens in a new tab), a claims-made policy delivered or renewed in Connecticut must allow purchase of prior-acts coverage and give a right to buy equivalent coverage during the policy period and no later than 30 days after termination. Connecticut does not generally require every business to carry professional liability insurance, and the requirement depends on the profession, license, contract or statute. Our guide to Connecticut small business insurance covers the other coverages a Connecticut business may discuss with an agent.
In New York, Insurance Law § 107(49) (opens in a new tab) defines professional liability insurance as coverage for liability arising from practicing a profession that needs a New York license, or from operating a certified hospital in treating patients. New York does not generally require physicians to carry it, according to DFS OGC Opinion No. 08-06-02 (opens in a new tab), but Public Health Law § 230 (opens in a new tab) can require a physician placed on probation to carry malpractice insurance of at least $2 million per occurrence and $6 million per policy year.
Questions to ask your agent or insurer
- Is the policy claims-made or occurrence, and what is the retroactive date? This decides whether the policy responds based on when the claim is reported or when the act happened.
- What happens if I cancel, change insurers, retire or stop practicing, and is prior-acts coverage or an extended reporting period available? Claims-made coverage can leave a gap after the policy ends.
- What are the per-claim and annual aggregate limits, and are defense costs inside or outside them? The answer shows how much remains for settlements and how several claims can exhaust the policy.
- Which professional services, employees, contractors, locations, subsidiaries and business names are covered? Coverage follows the declared profession, and work outside that description may not be covered.
- Which exclusions, deductible, consent-to-settle provision and claim-notice deadlines apply? These decide whether the insurer pays, who controls settlement and whether late notice affects coverage.
Frequently asked questions
Is professional liability included in a business owner's policy?
A standard businessowners policy typically includes commercial property, general liability and business-income coverage, but not liability for wrongful professional practices, according to the NAIC (opens in a new tab). Professional coverage can come as an endorsement to some policies or as its own policy.
Does it cover intentional or criminal acts?
Intentional, criminal, fraudulent, excluded, late-reported or pre-retroactive-date conduct may be uninsured. Texas Department of Insurance (opens in a new tab) materials state that medical liability policies do not cover intentional and criminal acts, subject to policy terms.
Which professions are required to carry it?
It depends on the profession, license and contract. The Texas Department of Insurance (opens in a new tab) notes that some Texas licenses, such as home day-care centers, HVAC installers, plumbers and real-estate inspectors, require professional liability insurance. Confirm the current requirement with your state licensing authority and insurer.