What is Professional Liability Insurance?
Professional liability insurance, commonly referred to as Errors and Omissions Insurance (E&O Insurance), insures a person and/or an entity against claims made by third parties (clients, contractors, customers, etc.), alleging negligence in the rendering of, or the failure to render, professional services. Exactly what constitutes negligence is difficult to define. Loosely defined, negligence refers to the failure to provide the degree of knowledge, care or skill of the average professional peer in good standing, under specified circumstances. Essentially, any person or any business that claims to be expert in a particular field can be held responsible for work, advice or counsel within that field.
Why do I need it?
What exactly does professional liability insurance cover?
Professional liability policies provide coverage for actual or alleged errors, omissions, negligence, breach of duty, misleading statements, and similar claims resulting from the performance—or non-performance—of professional services.
The ACS professional liability policy covers legal & court costs involving claims or allegations up to the chosen policy limit.
Won't my employer’s policy cover me?
Even though you may be covered under an employer’s policy, chances are that coverage may have some gaps. In addition, your employer’s policy probably only covers you while at work. So if you were to give advice after hours, perform volunteer work, or moonlight outside of your full time job you would not be covered.
The only way to ensure that you're covered for your professional acts is to have your own policy, issued in your name. Your policy will provide you with limits of liability that meet your professional needs. And, because the policy is issued in your name, many possible conflicts of interest between you and your employer may be eliminated in the event a claim is filed.
How are my rates determined?
The policy premium is typically based on the following factors: the profession involved and the likelihood of a claim being brought, the potential severity of the claim, the number of years in practice, the number of professionals covered, annual revenues, location of the business and claims history.
Your premium can also be affected by the choices you make regarding your policy. For example, the limits of coverage you select have a direct bearing on the amount of your premium.
How do I determine the appropriate limit of liability?
Limits in terms of minimums and maximums often vary by state and are typically calculated per occurrence with an annual aggregate.
Also, many clients require professionals to carry professional liability and have set parameters.
Why did my rate increase?
- Additional partners/employees- When you increase the number of people in a company the underwriters factor this change into the renewal rate.
- Increased Revenue or billings- As your business grows and you make more money, there are rating tiers that determine what premium category you fall into. Sometimes on renewal you may have jumped a rating tier resulting in an increase in your renewal premium.
- Retro-active date- With a claims-made policy a retroactive date is attached. After each renewal the retroactive date factor gets adjusted for the first 5 renewals. The retroactive date allows you to submit claims from the retroactive date to the expiration date of your current policy. This added exposure comes with a small increase in your first 5 renewals.
- Additional Exposures/Change in Operations/New Clients- There are many factors that underwriters review on your renewal account. If you add a new service or have an overseas client, the underwriters have different rates for each exposure. We work hard to push our underwriters on the rates but every year comes with different challenges and a new loss history to review.
What is an optional extension period and why is it important?
Many of you are already aware that your Professional Liability Policy through the American Chemical Society is a Claims-Made Policy. The claims-made policy provides cost advantages but also allows you to insure the risks resulting from past services under your present policy. If we don’t see cancellations or lapses in coverage, we can approve Retroactive dates on our policies going back many years.
One of the important features of a claims-made policy is that you must have a current policy in force to submit a claim. Once premiums stop the coverage stops. Even if the alleged incident occurred while the policy was in force, a claim submitted to the insurance company after the coverage period will not be covered.
That is where our Optional Extension Period Endorsement can really come in handy. Whether you are nearing retirement, winding down operations or making a career change please take the time to look over our Optional Extension Period Coverage. The Optional Extension Period Endorsement affords extra time for reporting claims to the insurance company. It is often referred to as “tail” or “tail coverage.”
Another scenario that can come into play is if your policy is cancelled or non-renewed and you cannot find immediate replacement coverage, the Optional Extension Period is available in most situations. Our product with Lloyds would help with this issue by providing a 12-month extension at 100% of the policy premium.
The cost may seem high for this endorsement but with the societal changes that have increased claim frequency, we suggest evaluating the need for the coverage. The first-year premium cost will be 100% of your expiring policy premium with future years at discounted rates. The coverage can be purchased up to 3 years after your policy has expired and can even be purchased longer pending underwriter approval.