Professional indemnity insurance or professional liability insurance is also known as errors and omissions. It is a form of insurance (a liability insurance) that helps to protect professional advice and service. It provides protection to individuals and companies from bearing the cost of a civil lawsuit and damages awarded that are filed by a client for a negligence claim.

It covers the allegation of failure to perform on the part of a professional, of an error, or of an omission in service, of a defective product sold by a policyholder, or a financial loss. These are causes for legal action, but they are not covered by a general liability insurance policy. It may take different forms and names all depending on the profession that it is required for such as medical, legal, and other businesses for contracts.

In professional indemnity insurance, the coverage provides for legal costs even when the allegations are proved baseless. Coverage does not involve criminal prosecution nor potential liabilities under civil law, which is not subject to any forms of insurance.

The primary reason for professional liability is because there can be other types of insurance that are required for general liabilities. The other types include product liability, public liability, and employers. There are many types of professional services which lead to legal claims such as negligence, misrepresentation, fair dealing, violation of good, fair dealing, and inaccurate advice.

For example, if a software product fails. Many problems crop up including advertising damages, physical damage, and personal damage which may trigger a financial loss. This can be because of misrepresentation by the software company.

The custom-designed product fails without causing any damage to person or property; the product liability policy may cover the damages like the losses that come from business interruption. This will not cover the cost of redesign, repair, and replace the failed product. Claims against the manufacturer will be covered by a professional indemnity insurance.

Professional indemnity insurance policies are set up claims-made basis [policy covers claims which are made during the policy period]. Indemnity provides insurance against any loss that comes from any claims made during the policy period: any error, omission, or negligent act. Claims related to incidents that occurred before the coverage was active will not be covered, although some policies may have a retroactive date.

Liability does not involve criminal prosecution or legal liability under civil law. It covers what is specified in the policy. Data breach, cyber liability, and technology issues may not be added to the policies available in the market.

The technical terms used in these policies make them different from other policies. This may lead such policies to provide coverage from the bare minimum to complete coverage. Technical terms with major legal differences may sound similar to a non-lawyer

Negligent act, error, or omission coverage indemnifies the policyholder against loss incurred due to a professional error or omission. A negligent act does not apply to all the three categories, but a non-legal reader might assume that it does. The terms “negligent act” or “negligent error,” or “negligent omission” restricts the policy and will deny coverage in a lawsuit.

Profession
For medical profession, malpractice insurance is taken; E & O is used by lawyers, brokers, consultants, and agents. Other professions that purchase professional indemnity insurance include accountants, construction, plumbers, financial services, charities, non-profit organizations, etc.

This type of insurance is common all over the world. Every country has its professional indemnity insurance legislation. In Italy, a number of dispositions have introduced an obligation for every category of self-employed professionals to acquire this form of insurance. They are effective only with the parameters.

Errors and omissions
This may include errors and mistakes and is often used by consultants, brokers, agents, notaries, home inspectors, engineers, attorneys, IT service providers, architects, quality control specialists, analysts, website developers, etc. A mistake that can cause financial harm to another can happen during any transaction.

Gaps
A gap or lapse in coverage could be due to not renewing the E&O coverage the same day it expires. This may result in a loss of coverage for prior acts. There is no coverage for any business placed before their new effective date. Some may allow a grace period, while others may disallow.

Gaps are common in errors and omissions. Most people are not aware of what a gap is. This should not be confused with terminating or renewing a policy due to retirement/death. In such cases, an extended reporting policy (ERP) may be purchased.

Tail
Tail or extended reporting covers events that occur while the policy is in force but are reported after the policy expires. Many such policies allow extended reporting time for almost six months after the policy expires.

Nose
Prior acts or nose coverage eliminates the need to purchase tail coverage. This is quite affordable. Tail coverage costs 2/3 times more than the expiring premium.

Civil liabilities
Some policies go beyond the standard coverage. It does not include libel, slander, and breach of contract, breach of warranty, intellectual property, personal injury, security, and cost of conduct. Coverage covers what is added to the professional indemnity insurance. So, the clause of civil liability policy is wide; there is a long list of exclusions so that they are included in other policies as well.