Does Your Professional Liability Policy Cover All of Your Business’s “Professional Services”?
“Professional liability insurance,” which is also called “errors and omissions” (E&O) liability insurance, typically provides coverage for defense costs and settlements or judgments attributable to claims based on “Professional Services.” “Professional Services” is typically a defined term limited to services performed for a third-party for compensation. In addition, the Professional Services definition may be expansive, encompassing all services except a few specifically excluded services. Or the definition may be restrictive, encompassing only specifically identified services. Because the Professional Services definition limits the scope of insurance coverage, businesses must ensure that the definition is broad enough to encompass all services that might generate potentially insured exposures.
Ensuring that the Professional Services definition is broad enough may not be difficult for some businesses. This would include businesses that offer a discrete set of well understood services that don’t change over time. But for many businesses, making and keeping the Professional Services definition appropriately broad can be a challenge.
Sometimes a business need only pay attention to the “Professional Services” definition in a single policy. But that’s not always the case. A business may have numerous different types of professional liability-type coverages addressing relevant exposures. Those coverages may be in one policy, different sections of a single policy, or in multiple policies. Moreover, the relevant definition is not always literally “Professional Services.” Similar definitions for particular exposures in various industries include “lending services,” “trust services,” “technology services,” “telecommunications services,” and “investment management services,” just to name a few. The point is that any particular business may need to keep track of multiple definitions in multiple coverage sections or policies.
In many cases, an entire corporate family with diverse operations is insured under one professional liability insurance program. In the best circumstances, it may be a substantial undertaking to survey and identify all professional services offered, even once. But periodic reviews may be necessary. Professional service offerings tend to change over time, whether because of a dynamic or entrepreneurial corporate culture, progress in technology or processes, acquisitions, divestitures, or other reasons.
Technology, financial services, and other types of businesses offering sophisticated or cutting edge services often face additional obstacles. Sometimes even the specialists within a business are at a loss to explain services, let alone for a risk manager to translate the explanations in a way that insurers will both comprehend and clearly state in insurance policy language. Then, to top it all off, insurers are often inflexible with their forms and language, particularly for businesses paying “only” a five or low six-figure premium.
What is our practical advice? Any insured business offering professional services should survey and identify all services provided to a third-party for compensation. The business should compare that list of services to those encompassed by the “Professional Service” definition (and/or other similar relevant definitions) of all relevant professional liability-type policies and coverage sections. The business should do this periodically, to make sure that insurance policy definitions keep pace with any changes in service offerings. If the Professional Service-type definitions are not broad enough to encompass all services, the business should explore solutions. It is possible that insurance policy changes could be easy, available at no or low cost. Or it may be necessary to purchase an additional type of professional liability coverage altogether. Sometimes a “manuscripted” (tailored) policy term, endorsement or entire policy is required.
If a necessary change is unavailable or cost prohibitive, the business might be able to employ a non-insurance solution. The business might maintain the professional service if the margin justifies the risk, drop the service if it does not, or address the risk with contractual indemnity and/or limitation of liability provisions.
We can help. We often help our clients compare their list of services to policy definitions, work with brokers to manuscript solutions for special exposures, and draft contractual indemnity and limitation of liability provisions.