The definition of the term, "professional liability insurance." is as it is simply stated, it insures an individual and/or an entity (corporation, LLC, LLP, partnership, etc.) against claims made by third parties (clients, patients, customers, etc.), alleging negligence in the rendering of, or the failure to render, professional services.

Exactly what constitutes "negligence" is often a bit elusive, but can be loosely defined as the failure to provide the degree of knowledge, care or skill of the average professional peer, in good standing, under similar circumstances. Essentially, anyone or any firm that holds themselves out as experts in a particular field can be held responsible for their counsel, their advice or their work .
Professional liability insurance is also often referred to as "malpractice", "errors & omissions" or "E&O" insurance. These are just different ways of saying the same thing. For reference purposes we will refer to all of these as simply professional liability insurance, unless  am discussing an area that more commonly uses another term.

In recent years the scope of professional liability coverage has broadened significantly to include such professions as business management or technology consultants, marketing consultants, engineers and software designers, environmental consultants, public relations, Internet service providers, all sorts of mental health or substance abuse counselors, and yes, brokers and insurance agents. The list, in fact, is virtually limitless, as just about anyone who claims to be an expert in any field and is compensated for his/her/their expertise, can be held liable in the event that things don't turn out as they should.

A common misconception that we often hear is that all someone needs to do in order to avoid liability is to establish a corporation, limited liability company ("LLC"), or other type of limited liability entity, so that should a claim be made all someone has to do is "bankrupt" the entity and walk away. Well, not so fast! Most professional liability claims are based upon a personal service. While the contract (written or not) may have been made with a corporation, LLC or such, the actual work or advice is provided by a person, whether a member or shareholder of the entity, or an employee. Thus, this type of claim generally names boththe entity and the individual(s) involved.
Corporations and other similar entities are often excellent ways to take full advantage of certain tax laws and regulations, including pension plans, etc. In most cases they also do provide protection against what might be referred to as "transactional" or "organizational" liabilities, such as trade debts, lease obligations, etc.

Good professional liability defense attorneys tend to be specialists, and tend to be expensive. While the attorney who handled your friend's divorce, wrote your Will, or worked with you on forming your corporation, may very well be a superb lawyer, he or she is probably not the one you want defending you against a professional liability claim (and they will undoubtedly tell you just that). Unlike the plaintiff's attorney, who may be working on some form a contingency basis, defense attorneys get paid, regardless of the outcome. Therefore, they usually request a substantial retainer and deposit against costs before agreeing to represent you.

We sometimes hear from clients that they believe that if they win, they will simply demand that the losing plaintiff pay their legal bills. There are two key problems with this theory. First, even if the court were to make such an award, you still have to collect on the judgment; not to mention the fact that you would already have had to pay your attorneys in the first place. Second, such awards against a losing party are extremely rare in courts in the United States. But, by all means, speak with your attorney about this - if he or she tells you differently, be sure to get that in writing!

When considering the purchase of professional liability insurance coverage, the first critical decision must be that of selecting your insurance broker. It is often counter-productive to submit multiple applications to lots of different brokers. While you may think that this encourages competition in reality is usually results in a muddle of confusing choices. Most good, experienced professional liability specialists will not participate in a "cattle call" since clients who believe that this is the way to buy insurance are often simply looking for the cheapest price they can find, with little or no interest in the terms of the policy or the quality and experience of the underwriter and insurance carrier. Most insurers will only release a quote to one broker. Should multiple submissions arrive, the first submission is generally recognized by the underwriter, and then all the other brokers are blocked.

Let us say that ABC Insurance Company gets a submission today from a broker on your behalf, and tomorrow they get another submission from another broker, also on your behalf. 99% of the time, ABC will release their quote only to the first broker, and will inform the second broker that the market is blocked. So, what's the big deal, you ask? After all, if the first broker brings you ABC's quote and you're happy with it, who cares about the second broker.

In some cases, you would be correct. No harm, no foul. Unfortunately, most professional liability insurance policies are customized to meet the specific needs of the specific client. While ABC Insurance Company may have a common basic policy form, this is only the chassis – much like a Ford might have an identical chassis to a Mercury, but they end up as very different cars.

To this chassis, the insurance company then adds endorsements. Some of these endorsements add restrictions or exclusions; some broaden the basic coverage. A good, experienced professional liability insurance broker knows the weaknesses and strengths of each carrier and their policy forms, and knows which endorsements might benefit a particular client, and which ones don't.
Furthermore, an experienced insurance broker can negotiate with the underwriter to say , delete, add or modify the terms of the policy. A good broker will also be able to explain to you (his or her client) the terms of the coverage being proposed. If you feel that a change is needed, your broker should be able to conduct meaningful and competent negotiations on your behalf, rather than simply accepting what is handed to him or her.

Now, returning the quote from ABC Insurance Company  mentioned above, let’s say that the broker who was first-in-line is really not all that familiar with what it is that you do, or maybe has very little experience dealing with professional liability. In fact, the second broker, who is now blocked really knows what he or she is doing. Unfortunately, the second broker – the broker who can probably get you the best (not necessarily the cheapest) deal, cannot do anything further for you with ABC's underwriter.

Indeed, ABC Insurance Company may be a great company, but unless your broker knows how to negotiate the best policy terms and conditions, you may end up with, less coverage than you need, more coverage than you need, inappropriate – or dangerous – exclusions, a higher premium than you should be paying . . . or maybe a combination of all of these.

Your insurance broker should be truly independent, meaning he or she is not focused solely upon selling you any one particular insurance company's program.

This is certainly not to suggest that program policies are not good ones. In fact, they often provide good coverage at a fair price. Sometimes programs are endorsed by various professional associations, such as medical societies, bar associations, or other similar groups. While, in some cases, endorsements such as these are truly meaningful, more often they are little more than a marketing device, for which the endorsing organization is paid a substantial amount of money. For instance, I know of one program for attorneys where the endorsing bar association receives a check for over $1 Million per year for their endorsement – where do you think this money comes from? Expensive policies, of course.

Some programs are designed to be easy to underwrite - meaning that if you or your firm fits within a preset average range, you will qualify, but if you present any deviation from the "norm", you end up either not qualifying - or paying more for your coverage than you should. This is referred to as "slot underwriting".

An experienced and knowledgeable insurance broker, specializing in professional liability coverage, will discuss with you all available options . . . and most importantly, will be able to discuss the potential advantages and disadvantages of your choices.

Most professional liability policies are written on a "claims-made" basis, though sometimes coverage is available on an "occurrence" basis. Knowing which you have - or which you need - can be absolutely critical in preventing dangerous gaps in coverage.

Are defense costs provided "within limits" or "outside limits" or maybe somewhere in-between? What about the deductible? Does it apply to defense costs? Does your policy provide coverage for administrative or disciplinary proceeding brought by a governmental or regulatory body?

What "triggers" coverage? Does a simple allegation, such as a statement made by a client, or does an actual written demand have to be made . . . or maybe a lawsuit must be filed and served before you are protected?

Do you - the insured professional - have any input in settlement negotiations? Is your consent required in order for your insurance company to settle? If so, and if you decline to settle, what happens at that point?

Who selects defense counsel? Will your insurance company appoint an attorney for you, or will you - the insured professional - have any input about who is to represent you?

What about your time? If you need to take time away from your practice or your business for depositions, trial, etc., are you going to be compensated in any way for your lost income?

There are no "right" or "wrong" answers to any of these questions, but it is critical that you - the insured - know what coverage your premium dollars are buying. Getting these questions answered should be part of the insurance buying process, since once you have a claim, it's too late to find out what coverage you don't have. Don't make the common mistake of assuming that the policy that is handed to you is what you need. You wouldn't sign a new Will without reading it, just because your attorney tells you to, would you?

You wouldn't just take two green capsules a day for a month, without asking what kind of medicine it is, just because your doctor told you to, would you?

If you have selected your insurance broker carefully, he or she can be depended upon to provide you with excellent service and advice – but in the end, the ultimate responsibility for YOUR decisions are up to YOU.

While, obviously, each applicant's situation must be reviewed individually, prior claims or disciplinary experience is not necessarily a huge problem. Frankly, even if your past experience puts you into a "hard-to-place" category, an experienced, creative professional liability insurance broker should be able to find you good, affordable coverage.

For additional information, please click on one of the selections to the left. You can also send an e-mail directly using the online contact form, or you can pick up the phone and call me at, 801-619-6288 or 866-883-1709.