E&O Insurance– The Definition of Professional Services
E&O or errors and omissions insurance, also known as professional liability, and in the medical world as malpractice insurance, is another one of those insurance policies that are not standardized and require a level of expertise to understand and interpret.
The E&O policy is intended to provide liability protection for a professional, which I’ll explain in a moment, for lawsuits that arise alleging some failure in providing professional service to others. In most cases – outside of medical malpractice – the E&O policy will exclude bodily injury and property damage which is the domain of general liability insurance. The damages associated with E&O claims are financial.
An example of an E&O claim is a consultant provides advice to their client which is wrong, inaccurate, or inappropriate. The client follows that advice and suffers financial damages, then turns around and sues the consultant. The consultant’s general liability policy would not respond, but their E&O policy would.
A “professional” who may need to consider E&O insurance is anyone who provides a service that requires either a degree of higher education to master or requires a specialized skill or unique ability that is not common.
Professions that commonly purchase E&O are lawyers, accountants, insurance agents, travel agents, consultants, registered investment advisors and others in the financial services industry, barbers and hairdressers, wedding planners, engineers, architects, real estate brokers, and many others.
As mentioned, the E&O policy is not standardized. Every policy from every insurer writing E&O insurance will differ from each other, and the crux of coverage hinges on the definition of professional services. If the definition of professional services is not accurate or insufficiently broad to describe the operations of the professional, coverage could be limited in the event of a claim.
The point I want to drive home here is that just because you have an E&O policy does not mean you’re covered for all potential E&O claims you may incur. If the definition of professional services or the intent of the underwriter in defining the policy was not clear, there could be problems.
This can be problematic when a firm starts off providing one particular type of service and changes or morphs over time to a service that is different from what’s defined in the policy. Again, this should be picked up on a renewal application but can slip by an underwriter or client.
Another area where this is troublesome is when a service or offering is added to a business with an E&O policy. Still, that service offering is dramatically different than what is defined in the policy. Again, this could waive out coverage for that new service since the definition of professional services may not cover this new offering.
Here’s the bottom line. When it comes to E&O insurance, like all insurance policies, you need to read the policy and pay special attention to how the definition of professional services is stated. Then, if you’re not sure it’s broad enough or encompasses your entire offering, speak to your broker about amending that definition.
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