Your general liability policy is not built for bad advice.
General liability answers when something is damaged or someone is hurt. It does not answer when a client loses money because of what you told them to do. That is a different policy, and the moment a client puts it in writing is a poor time to find out.
Build the firm file The short answerInjury and property damage. Someone trips, something breaks
Financial loss caused by your work, advice or a missed step
A firm sells advice and carries only the first one
What does errors and omissions actually cover?
Financial loss a client suffers because of your professional work: a wrong recommendation, a missed deadline, an error in a report, something you should have flagged and did not. Cover generally extends to the cost of defending the allegation, which matters because the defence starts long before anyone decides whether you were actually wrong. The Insurance Bureau of Canada puts it the same way. Professional liability, which is the other name for errors and omissions, “would cover damages and defence for financial loss or bodily injury claims arising from acts of professional negligence”. Read the Insurance Bureau of Canada on what professional liability covers (opens in a new tab).
It does not turn a disappointing outcome into an insured one. Cover responds to a mistake or an omission in the work. It does not respond to a client who is simply unhappy with a result you never guaranteed, and on most wordings it does not respond to a dispute about your own fees.
An allegation does not have to succeed to cost money. Most commercial errors and omissions policies are written as a duty to defend, which means the insurer takes on the defence of a claim that might fall within the policy before fault has been decided. For a firm without the cover, that cost comes straight off the balance sheet. Whether your own wording works that way, and whether the defence comes out of the limit, is set out in the policy.
Which one answers depends on what went wrong.
A visitor trips in your office
General liability. Bodily injury on your premises, nothing to do with the quality of your advice.
Your recommendation costs a client six figures
Errors and omissions. No injury, nothing damaged, only money, and general liability is not written to answer for money lost this way.
Three things worth knowing before a client complains.
It is claims made
The policy that generally answers is the one in force when the claim was first made against you, or when you reported the circumstance it came from. It is not the one in force when the work was done. A claims made policy usually carries a retroactive date, and work done before that date is generally outside it. Let cover lapse between contracts and the replacement policy usually starts a new retroactive date, so past work can stop being covered. Unbroken cover, not simply holding a policy, is what protects work you did years ago.
Defence costs may sit inside the limit
On many wordings the legal bill comes out of the same pot as any settlement. A limit that satisfied the contract can be substantially used up before the merits are ever argued.
Promises in the proposal follow you
Guarantees of savings or outcomes written into a pitch can be read as a contractual promise rather than professional judgement. Insurers look at what was promised, and a policy is not a good place to discover you promised more than you meant to.
What consultants ask us about this.
My client is unhappy but has not sued. Do I tell my insurer?
Usually yes, and sooner rather than later. Most wordings require notice of circumstances that could give rise to a claim, and late reporting is one of the ways a claim that would otherwise be covered gets refused. Tell your broker before you reply to the client.
The contract asks for errors and omissions on an occurrence basis. Can I get that?
Rarely, because professional liability is written claims made almost everywhere. That wording belongs to general liability, where occurrence cover is the norm. It is usually resolved by explaining the market to the client, and it is far easier before signature.
We are a small firm with careful people. Is it really necessary?
Care reduces mistakes and does not reduce allegations. The cost that arrives first is defence, and it arrives whether or not the complaint has merit. Small firms feel that cost hardest because there is less balance sheet behind it.
Does it cover work our subcontractor did?
Sometimes, and it depends on the wording and on how the work was engaged. Firms that pass specialist work to associates should check this specifically rather than assume, because the client will come to whoever signed the contract.
We hold client data. Is that part of the same policy?
Not usually. A data breach is a different exposure with its own cover, and it brings reporting duties of its own. A firm holding client records typically needs both looked at together. Send us what you hold and we will tell you which parts are answered where.
Not the question you had? Build the firm file and set out your own situation in plain words. A licensed broker reads it and replies in writing.
Worth reading next: what counts as a professional for E&O.
Send us the insurance clause from your client contract.
We read what it actually requires, tell you where your current cover sits against it, and say plainly if it asks for something we cannot see a market for.