What is Professional Liability Insurance and do You Need it if you are not a Traditional Professional Services Provider?

Many years ago, professional liability insurance was primarily intended for individuals in the “learned professions,” such as medicine, law, engineering, and accounting. However, as the service sector of the economy grew, there was a greater need for specialization, regulation, and licensure in other service fields, leading to a demand for professional liability coverage beyond these traditional areas. Initially, this expansion included coverage for insurance agents and financial consultants, but now professional liability insurance is available to nearly any occupation that requires specialized knowledge and skills, primarily mental rather than physical.

The variety of businesses needing professional liability insurance, often known as “errors and omissions” coverage, continues to grow. This type of coverage has become so widespread that even jobs traditionally linked to manual labor now frequently acquire professional liability insurance. For instance, general contractors offering limited in-house design services are often advised to secure professional liability coverage to address losses from alleged design flaws.

While there are many differences between professional liability insurance and other types of liability coverage, the most enlightening comparison is with commercial general liability (CGL) insurance. The distinction is not simply about the type of damages claimed. Although CGL policies are typically linked with bodily injury and property damage claims and professional liability policies with economic loss, this distinction is not precise. In practice, the two coverages overlap enough to often require a professional liability exclusion endorsement to be added to a CGL policy when professional liability coverage is issued at the same time.

The key difference between professional liability coverage and CGL coverage is in the focus of the insurance grant. Professional liability policies emphasize the insured’s actions or inactions, rather than the nature of the resulting damages. Coverage is often sought for actions that are intentional in that the underlying act was deliberate, even if the resulting injury was not. A surgeon performing an invasive procedure is a common example, as the act itself is intentional and necessarily injurious to some extent, and many claims involve outcomes that were intended, such as the removal of an organ that the claimant later argues was unnecessary.

In contrast, CGL coverage is generally based on an “occurrence,” usually defined as an accident or event that is neither expected nor intended from the insured’s perspective. Similarly, because professional liability insurance focuses on acts or omissions rather than damages, there is often a delay between the wrongful act and the discovery of damages leading to a claim. It is not uncommon for a claim to be filed years after the incident due to late discovery or a progressive injury.