Professional services are meant to be covered in Errors & Omissions (E&O) Insurance policies and are therefore excluded in certain other types of policies through a professional services exclusion. The professional services exclusion is common in Directors & Officers (D&O) and Commercial General Liability (CGL) Insurance policies, and some other policies as well. What is it, why is it there, and is this an unnecessary reduction in coverage?
Professional Services Exclusion
The professional services exclusion (see here) excludes coverage for claims related to the professional services of the insured. For example, the wording might read:
…involving the rendering or failure to render professional services…
When this wording is present, the underwriter is not intending to cover professional services because the underwriter expects that professional services claims will be covered in an E&O Insurance policy, not in the policy in question. For example, D&O underwriters expect claims arising from professional services to be covered in an E&O policy.
What To Know
Unfortunately, many insureds do not know that the professional services exclusion exists, and therefore assume that they are adequately covered when they are not. Many individuals sitting on boards of both for-profit and non-profit organizations may not understand the need for additional coverage for full protection. They often ask whether the organization has D&O coverage and not inquire about E&O coverage.
One example industry group is technology. D&O underwriters will expect that E&O claims will be covered by a Technology E&O policy, and therefore will use a professional services exclusion to exclude professional services claims from their D&O policy.
And some organizations do not realize that they are providing professional services. An organization in this position should consider this question carefully and ensure that its communications and agreements with its clients and other parties clearly reflect the services that are being provided, or not provided. If the services offered are or could be professional services, the organization should have an E&O insurance policy.
For example, a staffing company might consider itself to be in the business of providing human resources to its clients, and not providing any professional services. However, D&O and CGL underwriters would likely provide policies excluding professional services, potentially creating a gap. A staffing agency is offering professional services and needs E&O.
A claim situation demonstrates the gap. In a case noted here, a staffing agency provided a pharmacy technician to work for an infusion services company that operated at various pharmacies. A claim was made against the staffing agency related to its professional services and the professional service error of the clients. The claim was denied by the CGL insurer due to the professional services exclusion in the staffing agency’s coverage. It appears that the staffing agency did not have E&O Insurance.
Other examples include:
- A non-profit social service organization may have D&O, but the organization will need E&O as well for the professional services provided to clients.
- A healthcare provider needs both CGL insurance and E&O insurance (in addition to other coverages) to be fully covered for all types of liability claims.
- A technology platform focused on real estate may not realize they need Real Estate E&O as well as Technology E&O.
- A contractor may be helping clients by providing design services. Design services are considered professional services and may be excluded from a CGL policy, and an E&O policy will fill the gap.
- Customers of a tech platform may rely on the platform and its data to conduct their business. The tech company should have Technology E&O for protection.
There are policies that combine multiple coverages together in one package, although these are not typical. For example, a few insurers offer CGL insurance policies packaged with E&O, but combined coverage is often not be as comprehensive as separate policies.
Are there solutions? Yes!
The obvious solution is to obtain E&O Insurance for any professional services you may provide.
Additionally, some organization may be able to protect themselves by being clear what the organization is offering and not offering. This may be possible through scope of service, indemnification and other provisions in client contracts. Your organization’s legal counsel can provide perspective on whether this approach is appropriate.
We can help you determine whether you need insurance, and what type might be best for you.
eSpecialty Insurance is your specialty insurance expert. We have developed a streamlined marketplace to provide multiple proposals from a range of competitive insurers, along with expertise to help you evaluate your exposures and choose the best combination of comprehensive coverage and price. We look forward to working with you.