If your livelihood depends on providing professional services or counsel, Professional Liability Insurance is essential protection for your career and assets in case of mistakes or allegations of negligence. This coverage, which transfers reputational risk from the professional to the insurance carrier, goes by various names, including Miscellaneous Professional Liability Insurance, Errors and Omissions (E&O) Insurance, Malpractice Insurance and Professional Indemnity ― depending on the business sector.
Professionals such as doctors, lawyers, architects, engineers, accountants, realtors, consultants and brokers typically carry Professional Liability Insurance. Some professionals are legally obligated to secure coverage. However, anyone offering services for a fee can benefit from this protection, including those in administration, design, government, healthcare, marketing, media, printing, staffing and technology.
And right now it’s an increasingly buyer-friendly market. Insurers are eager to expand their Professional Liability business, particularly for attorneys, architects and engineers. New carriers have entered the market, intensifying competition. Despite fluctuations in previous years, rates have generally stabilized.
According to Business Research Insights, this coverage is expected to grow globally at a compound annual rate of 3.5% through 2028. This growth is attributed to the service-sector economy’s transformation and increased awareness about Professional Liability Insurance.
Professional Liability Insurance Market Update
Earlier this month, Alera Group released a new 2023 Property and Casualty Market Update to share insights gained from July 1, 2023, P&C policy renewals. Here’s what we said about Professional Liability Insurance:
- “The outlook for Professional Liability Insurance is stable for most classes of business. Classes that remain challenging are public officials, schools, staffing agencies, franchise businesses, real estate developers and social service agencies.
- “Rates are trending relatively flat. Any rate increases will be class- and risk-specific.
- “Demand for this coverage has increased, as more types of businesses are required to purchase Professional Liability Insurance.
- “New carriers have entered the market, and there is ample capacity and availability, along with increasing competition for quality accounts.
- “New programs and products are entering the marketplace as insurers see opportunities for profitable growth.
- “Insurers are more willing to consider tougher accounts and specialized coverages, such as contingent bodily injury (BI) and property damage (PD), and contract-specific limits.”
Professional Liability Insurance Claim Trends
The phenomenon of “social inflation” – increasingly large jury awards in liability cases ― has driven claim-related expenses beyond the general inflation rate. This trend has also contributed to the rise in “nuclear verdicts” ― higher-than-anticipated court awards or settlements, often $10 million or more.
Architects and engineers are among the newly vulnerable. As an American Society of Civil Engineers legal brief notes, “Courts have been willing to find paths to keep design professionals in cases” in which they previously could “rely on contract provisions, or lack of privity, to avoid exposure and litigation costs.”
For attorneys, claim frequency remains stable, but claim severity has surged. PropertyCasualty360, in its coverage of an Ames & Gough survey of leading legal malpractice insurers, reported earlier this year that, “70% of the surveyed insurers had a claim payout of more than $50 million in the past two years, while three paid a claim in excess of $100 million and two saw claims of $150 million-$300 million.”
Bodily Injury Cases Find New Source to Pay Claims
Traditionally, professional liability claims centered on financial losses stemming from errors or omissions. However, a new trend has emerged. The Insurance Journal article “Skyrocketing Bodily Injury Claims Spill Over to Professional Liability Insurance Market,” notes that after exhausting General Liability Insurance limits in a bodily injury case, claimants have started suing professionals over alleged negligence.
The article cites this real claim scenario: “A property management company was sued after someone was injured at an apartment complex they managed. The claimant successfully argued the property manager was negligent in maintaining the property, thus triggering the professional liability policy and a multi-million-dollar payout.”
Faced with escalating litigation costs and claim expenses, insurance underwriters are intensifying their standards, posing more detailed questions and meticulously assessing the quality of the businesses they consider insuring. Professionals seeking coverage should be ready to provide comprehensive information about their business practices and risk management strategies.
5 Dos and Don’ts of Professional Liability Insurance Policies
Here are five essential considerations when purchasing a Professional Liability Insurance policy. These factors can significantly impact your ability to respond to allegations of negligence. Understanding policy terms and conditions is crucial for making informed decisions about your coverage.
- Avoid hammer clauses. If your insurer recommends a settlement that you reject, a hammer clause means you become financially responsible for any legal fees and judgments exceeding an initial settlement offer. For example, if you decline a $25,000 settlement recommendation and the case proceeds to trial with a $100,000 judgement against you, you’ll personally cover the $75,000 difference plus legal fees after rejecting the $25,000 offer.
- Add tail insurance. If you have a claims-made policy, secure a tail to extend coverage beyond your policy’s expiration date. Mistakes often surface long after a project ends, and without tail insurance, you risk covering these expenses out of pocket.
- Request defense counsel options. When you file a claim, the insurance carrier may assign panel counsel to respond to covered allegations. Review the panel list and rates during renewal discussions. Some carriers allow for preferred attorneys and rate adjustments. Professionals, especially attorneys, often prefer selecting their legal counsel, which can significantly impact the claims experience.
- Align your limits with your assets. If you have $100 million in assets, consider securing $100 million in liability limits. Opting for lower limits to save on premium dollars can jeopardize your financial stability in the event of a large claim. Choosing higher limits after a loss can significantly increase your premium, often more than if you had originally selected those limits. Additionally, insurers may decline to quote higher limits after a claim. Excess coverage and pricing also depend on the underlying limits.
- Understand the value of “duty to defend.” Even when you’ve done everything right, clients may still be dissatisfied and make unfounded accusations or file suit. Regardless of merit, the duty-to-defend clause in your policy requires that the insurer defend your interests against allegations of error, omission or misrepresentation.
Partner with a Specialized Broker for Your Profession
When selecting a broker, the first question to ask is, “How many clients do you have in my profession?” Ideally, the answer should exceed 100. Every profession comes with niche risks, such as missed statutes and conflict of interest claims for attorneys, or inadequate due diligence when selecting clients for architects. While a generalist may manage a small clientele in the same business class, insurance buyers often find specialists to be a more advantageous choice. Ask targeted questions to ensure that you’re entering the right partnership. A specialized broker will:
- Comprehend your unique risks and offer profession-specific advice;
- Nurture strong relationships with key underwriters who focus on your profession;
- Submit comprehensive coverage applications that present your risk and coverage needs favorably to the most suitable insurers;
- Access customized policy forms from A-rated primary carriers;
- Offer enterprise risk management services tailored for your exposures.
To protect your reputation and assets, partner with a tenured, specialized broker to expertly navigate the current Professional Liability Insurance market.
For a broader look at navigating insurance market conditions, read Alera Group’s September 2023 Property and Casualty Market Update.
GET THE MARKET UPDATE
About the Author
Property and Casualty Insurance Producer
Joel Jarvis specializes in Property and Casualty Insurance, with a strong focus on Professional Liability, Errors and Omissions, and Directors and Officers Liability Insurance for boards of directors and executives. With over two decades of experience, Joel has designed customized programs for attorneys and clients in the transportation, hospitality, nonprofit and construction sectors. His unwavering commitment to achieving success for his clients is evident in his win-driven approach. Joel strives to create environments where everyone thrives. Beyond his professional achievements, Joel actively contributes to nonprofit and legal organizations by serving on their boards and committees.