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Professional Liability

Professional liability, also known as errors and omission (E&O) insurance, covers cannabis companies in third-party or client lawsuits claiming substandard work or service. Work errors or oversights, missed deadlines, budget overruns, etc., often result in costly cases — but E&O insurance responds to these mishaps.

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Who is Professional Liability Insurance for?

Known primarily as errors and omission (E&O) or professional liability insurance, this coverage has also been dubbed “malpractice” insurance. General liability and E&O insurance protect companies from third-party liability allegations. However, only E&O insurance focuses solely on financial loss instead of bodily injury or property damage, as general liability does. E&O covers third-party financial loss arising from two factors: 1.) the insured’s product or service’s substandard performance and 2.) an insured’s act, error, or omission during the performance of client services.

Consider a customer unable to log into your client-onboarding SaaS platform for a few days due to a bug in your technology. The lockout causes your customer to miss out on new business opportunities for that week. E&O insurance would respond to this particular claim, whereas general liability wouldn’t since there was no physical injury or property damage.

Investors

Venture capitalists that offer investment management services to their limited partners.

Consultants

Consulting firms that offer cyber security auditing and guidance, not to mention cannabis lab consultants.

SaaS Marketplaces

Digital marketplaces connecting customers and vendors.

Why you need Professional Liability Insurance?

Protect against financial damages due to human error or oversights

Covers costs of client lawsuits alleging inferior work

Protects against third-party claims (i.e., slander, copyright infringement)

3.5 Years

It takes nearly 3.5 years to close a typical medical professional liability claim.

$4.5B+

The US experiences $4.5B+ direct loss of medical professional liability insurance yearly.

22%

More than 22% of businesses experience a professional liability claim each year, usually relating to client dissatisfaction.

What does Professional Liability Insurance cover?

E&O covers third-party financial loss arising from two factors: 1.) the insured’s product or service’s substandard performance and 2.) an insured’s act, error, or omission during the performance of client services.

Defense Costs

E&O insurance will often help cover defense expenses that result from a claim made against you or your business by a customer or client who is unsatisfied with your services due to an error or mistake.

Disciplinary Proceedings

Having E&O insurance can be helpful when faced with proceedings that are brought by a licensing, regulatory, or other government agency that accuses your business of professional misconduct.

Loss Earnings

Clients’ allegations can lead to extensive income loss due to the amount spent at depositions and trials; E&O can help cover this loss of earnings.

Employee Errors

E&O may cover claims that stem from errors made by employees, independent contractors, or temporary staff.

Claims and Damages

If your case results in settlements of claims caused by services or advice provided to clients, E&O insurance may provide coverage.

Personal Injury

While not always, some E&O policies may help cover the costs associated with personal injury claims, including slander or libel claims.

What Professional Liability Insurance Does Not Cover

This policy doesn’t cover tangible products or services that cause third-party bodily injury or property damage.

E&O doesn’t cover bodily injury or property damage that customers sustain while you’re doing business.

What Professional Liability Insurance Does Not Cover

This policy doesn’t cover tangible products or services that cause third-party bodily injury or property damage.

E&O doesn’t cover bodily injury or property damage that customers sustain while you’re doing business.

Professional Liability Insurance
Claim Examples?

Investment Case

Several limited partners (LPs) sued the fund after a failed investment was determined to have been made negligently, driven mainly by a conflict of interest rather than intrinsic value. After spending $60,000 in defense costs, the fund settled with the LPs for $225,000. The LPs also claim improperly charged fees.

Consulting Claim

An advertising consultant encouraged a clothing company to rebrand, target a new market and launch an in-your-face ad campaign. The strategy failed, losing the clothing company’s significant market share. They were also the target of lawsuits after several groups found the ads offensive. After suing the consultant, the clothing company agreed to settle for $1.2 million. The consultant had incurred $125,000 in legal costs by then.

Software Issues

Professional Liability FAQ’s?

More often than not, the premium is a function of company revenue. Changes in revenue will often be the driving factor for increase or decreases in cost on renewal.

How carriers determine premium depends entirely on the industry, for example:

Tech E&O policies may look at revenue in conjunction with monthly average users.
Allied health/malpractice premiums will be guided by the number of covered care providers.
A tour guide’s E&O policy may be rated on “hours”: hours per tour x number of customers per tour x number of tours per year.

Many variables factor into the cost, including:

Location
Claims history
Policy limits
Company’s developmental stage

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Professional Liability