"I already have liability insurance" is something we hear often. It's usually true, but it often refers to commercial general liability (CGL), which doesn't respond to the claims many service businesses actually face.
Here's how CGL and professional liability (E&O) differ, and how to work out whether you need one or both.
What CGL covers
Commercial general liability responds to claims that your business caused:
- Bodily injury to someone who isn't your employee, such as a visitor who slips at your premises
- Property damage to someone else's property, such as a contractor damaging a client's building
- Personal and advertising injury, such as defamation or copyright infringement in your advertising
- Products and completed operations, for injury or damage caused by products you sold or work you finished
CGL is the foundation of most commercial insurance programs, and landlords, municipalities and clients regularly require proof of it.
What professional liability (E&O) covers
Professional liability, also called errors and omissions (E&O), responds to claims that your professional services caused a client a financial loss, for example:
- An engineer's design error that leads to costly rework
- An accountant missing a filing deadline, triggering penalties for a client
- A consultant's recommendation that leads to a failed project
- An agency missing a campaign launch date that cost a client revenue
- A software firm's bug that disrupts a customer's operations
These claims usually don't involve anyone getting hurt or property being damaged, which is why CGL generally doesn't respond.
The professional services exclusion
Most CGL policies exclude claims arising from professional services. Even where injury or damage is involved, if the root cause is professional advice or design, the CGL may not respond. E&O is designed to fill that gap.
Which one do you need?
| If your business... | You likely need |
|---|---|
| Has a premises that customers or visitors enter | CGL |
| Works on other people's property | CGL |
| Sells or distributes products | CGL (products) |
| Gives advice, designs, plans or recommendations | E&O |
| Delivers services under a contract with deliverables | E&O |
| Does several of the above | Both |
Engineers, architects, consultants, IT firms, accountants, marketing agencies and property managers usually need both.
Contract requirements
Client contracts often specify both coverages, with minimum limits, additional insured status on the CGL and sometimes a requirement to keep E&O in place for several years after the project ends. Read the insurance clause before you sign so there are no surprises when a client asks for a certificate.
E&O is claims-made
Most E&O policies are claims-made. The policy in force when a claim is made is the one that responds, as long as the work happened after the policy's retroactive date. Switching carriers without preserving your retroactive date, or letting coverage lapse, can leave earlier work uninsured. When you retire or close a business, ask about extended reporting periods.
How Summit can help
We review your contracts and the services you actually deliver, then build a liability program with the right mix of CGL and E&O. See how we restructured coverage for a growing engineering firm.