Professional Liability Insurance – Errors and Omissions Policies
Professional liability policies, also called errors and omissions (E&O) policies, are purchased by professionals to protect themselves from liability arising from their performance of professional services. E&O policies are typically purchased by those in the medical, legal, and banking professions, but policies may be issued for many other professions. Directors and officers liability policies are also included within the scope of professional liability insurance, but this article focuses on E&O policies.
E&O policies provide coverage for liability resulting from errors or omissions (i.e., malpractice) in the performance of “professional services.” Professional services are considered those that arise out of an occupation in which the professional uses specialized knowledge or skill that is predominately mental or intellectual rather than physical. Administrative practices (e.g., billing), fee disputes, and employment activities (e.g., firings) are generally not considered professional services.
Coverage under E&O policies may extend to both professionals and the entities for which they work. For example, a policy may insure a law firm or a hospital in addition to the lawyers and doctors.
Loss or damage
E&O policies generally provide coverage for “loss” or “damage” for which the insured is legally obligated to pay as a result of a wrongful act. Issues may arise as to what is considered a loss. Courts generally find that ill-gotten gains for which an insured must make restitution, fees that an insured must return, and fines or penalties that are uninsurable do not constitute losses.
E&O policies typically exclude coverage for losses that may be insured against in other types of policies. In addition, losses arising from the following items are typically excluded in E&O policies:
- claims arising from acts that involve dishonesty, fraud, or a crime
- claims alleging that the insured gained a personal profit or advantage to which he is not legally entitled
- claims that were made in litigation brought prior to the inception date of the policy or pending as of that time
- claims that were the subject of notice under a prior policy
- claims arising from acts that occurred prior to a particular date
- claims arising out of circumstances of which the insured was aware that might give rise to a claim
- claims arising out of a breach of contract
- claims by one insured against another insured
- claims for personal injuries and property damage
- claims for libel, slander, or defamation
- claims arising from pollution or nuclear radiation
- claims arising from acts involving vehicles
- claims arising from employment-related activities
- claims based upon the Employee Retirement Income Security Act of 1974
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