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Professional Liability Insurance: Analyzing the Fine Print of Exclusions and Clauses

Author: Kimberlee | October 7, 2024

Edited by: Kimberlee and Reviewed: Kimberlee

Introduction

A professional liability insurance policy (also known as an E&O policy – errors and omissions) is designed to protect your business against claims that you didn’t do your job professionally. While it has a robust set of coverages, there are professional liability insurance exclusions that you need to consider when buying a policy. Understanding the exclusions will help you understand your insurance gaps and take measures to fill those gaps or eliminate those risks. 

Understanding Why Policy Exclusions Are Included

Professional liability insurance exclusions exist for a number of reasons. First, a policy can’t protect against uninsurable losses. By having exclusions, insurance companies can keep costs down. It also will ensure that the insured party is responsible for its actions and not engaging in regular reckless activities. At its core, exclusions exist to help insurers better manage the risk they are insuring. Exclusions exist on all types of policies, including business owners policies

Common Exclusions in Professional Liability Insurance

There are common exclusions that just about every professional liability insurance policy will have. Let’s take a look at some of those common claim exclusions. 

Fraud and Illegal Activities

A claim will not be approved if fraud or illegal activity is associated with the named action. Insurance companies don’t cover illicit activities for just about any policy, let alone professional liability. Companies are expected to act in an honest and legal manner while conducting business with consumers and clients. 

Employment Practices

Employee-related claims are not covered by professional liability insurance. These claims include wrongful termination, discrimination, and harassment. These types of claims can be covered by employment practices liability insurance (EPLI). Employers should consider having both a professional liability policy and an EPLI policy to cover gaps and be better protected. 

Sexual Abuse

Sexual abuse is an example of an illegal activity that someone may charge you with. This is a specific exclusion on the professional liability policy. If you are sexually harassing or abusing a customer or client, your claim, not its legal battle, will be covered by your professional liability policy. You must fund your defense from savings or revenues. 

Property Damage and Bodily Injury

Property damage and bodily injury coverage are both third-party protections covered in general liability claims. These examples of possible claims are not covered by a professional liability insurance policy but are instead protected when you have a general liability policy. General liability insurance is one of the most common policies business owners will get for high-cost accidental claims. 

Contractual Liability

Another example of a professional liability insurance exclusion is contractual liability. Contractual liability is when a party assumes responsibility to fulfill contract obligations by signing a detailed contract. Insurance companies want to know that professionals are working with the use of contracts to outline activities clearly. However, if you fail to fulfill the contract obligations and get sued, your defense is on you, not the insurance company. 

Cyber Liability

Cyber liability is becoming more and more common in the marketplace, with more companies being hacked or their intellectual property being held ransom or stolen. The costs associated with cyber liability could quickly be tens of thousands of dollars. Unfortunately, this example of a claim is not covered by professional liability but is instead covered by a cyber liability insurance policy. 

Regulatory and Compliance Violations

Every business is expected to follow the rules and regulations of the industry. This means complying with regulatory requirements. If you don’t and are found guilty of violating them, your professional liability policy is not something that can protect you. 

Environmental Liability

Another example of a professional liability insurance exclusion is environmental liability. Should your company have a negative impact on the environment and be cited for such problems, this is outside of the scope of what professional liability covers. There are policies that may cover this type of claim and you should speak with your insurance agent about a specialized policy if you have these concerns. 

Claims Outside Coverage

Claims outside of coverage is a blanket term used to exclude miscellaneous claims that don’t fall under the umbrella of professional liability. This is a frustrating exclusion that seems like a scapegoat for insurance companies to deny what would otherwise seem like a valid claim. Talk to your insurance agent to better understand what is excluded from your professional liability policy. 

Specific Exclusions for Different Professions

When it comes to professional liability insurance, some professionals have to be extra careful to understand coverage and get the right policies to fill any coverage gaps. 

Medical Professionals

Medical professionals obtain malpractice insurance to protect themselves professionally. In this coverage, intentional acts are excluded from coverage. Doctors and medical professionals must be careful about what they do and ensure they perform the right acts. 

Legal Professionals

Legal professionals such as lawyers often get professional liability insurance to protect themselves against accusations that they didn’t do their job professionally. However, this policy has notable exclusions, including dishonest acts and fee disputes. Should there be a claim of this nature, the lawyer will be on his own to fund a defense. 

IT and Tech Professionals

IT and tech professionals must carry cyber liability insurance along with professional liability insurance to properly cover themselves for data breaches that occur not just to their own databases but to their clients. If you are an IT or tech professional, talk to your insurance agent to make sure you get the right policies in place to be fully protected against common claims. Additionally, IT professionals are not protected from intellectual property violations and should look to get a general liability insurance policy for protection. 

Consultants

Consultants can use a professional liability policy to cover them against instances where they may have given bad advice or recommendations. However, the policy will not cover them if they fail to deliver on promised services. 

Mitigating the Impact of Exclusions

While the exclusions of the professional liability insurance policy can leave coverage gaps, there are ways to mitigate the impact of these exclusions. 

Thoroughly Reviewing Policy Details

Go through the policy contract and review all pertinent details. Understand what is and isn’t covered so that you can establish a plan to overcome these gaps in insurance. It starts with understanding what those gaps are. 

Working with Insurance Brokers

Talk to your insurance broker or agent. You’ll find that they deal with most exclusions regularly and have specialized policies that will help cover the gaps exclusions create. While you may decide against getting too many policies because the risk is not big enough, it is wise to understand your options. 

Supplementary Insurance Options

Often, exclusions for a policy are covered by another policy. For example, employee injuries are excluded from professional liability but are covered by workers’ compensation. Look for supplementary insurance options to cover the risks you are most concerned about. 

Conclusion

A professional liability or E&O policy is important for most businesses to get. That being said, don’t make the assumption that it covers everything. Learn about the most common exclusions so that you can get the right policy to cover your biggest risks. 

Frequently Asked Questions (FAQs)

What is not eligible for coverage under a professional liability policy?

Professional liability insurance policies have many things that are not eligible for coverage that include illegal activity, sexual misconduct, and intentional acts. For a complete list of exclusions, speak with your insurance agent.

What is typically excluded from an employer’s liability insurance?

Employers may have many types of liability coverage, with each policy having its own exclusions. A general liability policy will not cover workers’ injuries or property damage. Professional liability with not cover third-party claims of bodily injury or property damage.

Are intentional acts covered by professional liability insurance?

Intentional acts are not covered by professional liability insurance. Professionals should be careful with what they claim and how they go about their regular business to ensure that any claim is accidental.

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