How to Get $1M Professional Liability (E&O) Insurance

For consultants, agencies and freelancers: one Professional Liability (E&O) policy with a $1M limit usually meets a $1M client requirement, once you check the contract's per-claim and total limits.

What does a $1M requirement mean for a service business?

Professional Liability (E&O, short for Errors and Omissions) covers claims that your work, advice or services caused a client a financial loss. For example, a client could say a late website launch cost it sales. A $1M clause often reads like this:

• Per claim: the most the policy pays for any one claim. Here, $1M.
• Aggregate: here, $2M. A $1M/$1M policy would not meet this clause.
• Claims-made: Professional Liability is almost always claims-made. It covers claims first made against you and reported during the policy. The work must also be done on or after the retroactive date, the earliest date of work the policy covers. An occurrence policy, by contrast, covers events that happen during the policy period, no matter when the claim comes. See claims-made vs occurrence.
• After the contract ends: this sample asks you to keep coverage for two years after the contract ends. Your retroactive date should usually be on or before the day the work started. A "tail" (extra time to report claims) may count if the contract allows it.

See Professional Liability limits explained.

Who asks service businesses for $1M?

You will often see a $1M requirement from:

• Mid-sized companies signing a master services agreement (MSA).
• Firms that hire freelancers or subcontractors.
• Nonprofits, schools and local government offices.
• Staffing firms that place professionals with their clients.
• Property managers, health practices and finance firms that hire outside advisers, designers or software help.

For one group, see $1M for consultants.

How is $1M Professional Liability built?

At $1M, you usually need one primary policy (the policy that pays first). You usually do not need excess layers (extra policies that pay after the primary is used up). Many service businesses buy Miscellaneous Professional Liability, a form for professions without their own policy type. Some groups usually buy a different form, such as Technology E&O for tech firms, A&E coverage for architects and engineers, or real estate E&O for agents.

$1M vs $2M: a $1M limit is a common ask on smaller or lower-risk projects. Some larger or regulated work may ask for $2M. Going from $1M/$1M to $1M/$2M raises the aggregate only, not the per-claim limit. See $2M Professional Liability.

A commercial umbrella almost never covers Professional Liability, so it usually cannot help you meet this limit. Additional insured status (naming a client on your policy so it is covered too) is usually not available on Professional Liability policies. If your contract asks for it, send the clause to Morrow so Morrow can review it. A certificate of insurance (a one-page summary of your coverage) shows that you have a policy, but it does not add anyone to the policy.

What will underwriters ask for?

An underwriter is the person at the insurer who decides whether to offer coverage. At $1M, they usually ask for:

• A description of your services, with a rough share of revenue from each.
• Revenue, contract size and largest clients.
• The industries you serve, including any finance, healthcare or government work.
• Prior claims, anything that could become a claim, and your current policy and retroactive date.

What affects the cost?

• Your profession and services. Work that touches money, health or legal rights usually costs more.
• Revenue and contract size. Larger contracts can mean larger losses.
• Claims history. Past claims can raise the price.
• Aggregate and retention. A higher aggregate usually costs more. A higher retention (what you pay toward each claim before the policy pays, like a deductible) usually lowers the premium (the price of the policy).
• Prior acts and defense terms. Keeping an older retroactive date (so past work stays covered) may cost more. Continuous coverage and no known problems often help. Defense costs outside the limit also usually cost more.

Frequently asked questions

I have a $1M/$1M policy and my contract asks for $1M/$2M. What should I do?

You would need a policy with a $2M aggregate. Morrow can request new quotes for a $1M/$2M policy and ask insurers (carriers) to keep your retroactive date and prior acts coverage where the market allows. If you switch, it is usually wise to keep the current policy in force until the new one starts. Report anything that could become a claim to your current carrier before it ends, and check your policy for its reporting rules.

Does my General Liability policy count toward a $1M Professional Liability requirement?

Usually not. General Liability mainly covers bodily injury and property damage, not financial loss from your professional work.

Do I need $1M Professional Liability as a freelancer?

Often only if a client contract asks for it. Read the insurance section of each contract before you sign, because it may list a Professional Liability limit, an aggregate and how long coverage must last after the work ends. Without a clause, a policy is still your choice, since clients can sue over financial loss.

This article is general information, not legal advice or a coverage determination. Coverage depends on the actual policy wording, carrier underwriting and your contract terms.