Professional Liability / E&O / D&O

Explanation of Terminology and Different Uses

This form of insurance is variously referred to as:

  • professional liability
  • professional indemnity
  • errors & omissions
  • malpractice

The use of language differs depending upon the type of professional being covered. “Professional liability” is a generic term covering all the different forms of policy.

Doctors and nurses or professionals that can primarily injure humans usually buy “malpractice” insurance.

Architects and engineers and people that work with things buy “errors & omissions” insurance.

Professional liability policies are issued to a wider customer base than was originally the case. At one time they were issued only to people with professional designations, upon whom the courts imposed high standards of care and established responsibility for their errors, omissions and negligent acts. As the years progressed courts held a wider segment of society accountable to their clients and third parties. Today, dozens of different types of quasi-professionals are now buying professional liability insurance.

Directors & Officers liability is a form of professional liability insurance, which goes a step further; in addition to covering the liability of the directors and officers, it also covers the liability of the corporation to indemnify its directors and officers for expenses they incur arising out of their alleged wrongful acts, provided that they were working on behalf of the corporation at the time. Broader forms of D&O insurance including Association liability insurance go a few steps further than this.  Association liability insurance is bought by “non-profit” organizations and not only covers the alleged wrongful acts of its D&O’s but also those of itsother employees (professional, quasi-professional and non-professional) and in addition covers suits against the corporation itself (entity coverage).

Entity coverage can also now be bought for “for profit” corporations, though some directors object to this due to the policy proceeds not being exclusively available to them.  In fact, some directors insist on “Side A”coverage only (indemnity for directors and officers only) and no coverage for the entity itself.  In this way, the proceeds of the policy cannot be confiscated by a receiver as propertyof the corporation in the event of bankruptcy.

Covering the corporation itself, eliminates the need for allocation of defense costs when paying claims, which would otherwise be split between an insured D or O and an uninsured corporation or employee other than a D or O.  Entity coverage is not usually without conditions and exceptions, so allocation cannot always be avoided.

Professional liability policies in general, are broader than a commercial general liability policy, in that they are not limited to personal injury and property damage, but also cover financial losses which do not necessarily arise out of either bodily injury of property damage. Economic loss can be covered under a professional liability policy but not under an unendorsed commercial general liability policy.

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Care in dovetailing E&O and CGL policies

Many Professional / E&O / D&O policies exclude property damage and personal injury covered under a CGL policy.  Care must be taken when dovetailing CGL and Professional / E&O / D&O policies so that each policy only contains appropriate exclusions; for example, for certain classes of occupation many CGL insurers attempt to include a professional liability exclusion which goes farther than it should.  For E&O risks which pose a financial risk (e.g. insurance companies or pension trust risks, amongst others) they try to exclude property damage and personal injury arising out of the operations, rather than limiting their exclusion to financial losses.  This type of exclusion nullifies the coverage intended to be provided by the policy.  Inexperienced brokers sometime make the mistake of accepting these exclusions.  Fortunately courts are unlikely to enforce them.

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Insurance DefInitions

For definitions of various forms of insurance refer to Insurance Marketplace

  • Architects Professional Liability
  • Associations Professional Liability
  • Limited Partnership Liability – Partnership Managers
  • Printers Errors & Omissions
  • Trustees and Fiduciaries Errors & Omissions (Pension,
  • Welfare and Employee Benefit Funds

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Insurance Sources

(General – Not necessarily accessible by TCIM)

Other Resources

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