$2M Professional Liability (E&O) Insurance for Compensation Consultants

If a client asks your compensation consulting firm for $2M Professional Liability (E&O), you need a policy that pays up to $2M per claim, usually $2M/$2M or a $1M primary plus follow-form excess.

What does a $2M requirement mean for compensation consultants?

Professional Liability (E&O, short for Errors and Omissions) covers claims that your advice or services caused a client a financial loss. For you, that could be pay ranges, a bonus plan or a pay equity review. A $2M clause might read:

• Per claim: the most the policy pays for any one claim. Here, $2M.
• Aggregate: the most the policy pays for all claims in one policy year. Here, also $2M.
• The common mix-up: a $1M/$2M policy usually does not meet this clause. See Professional Liability limits explained.
• Claims-made: Professional Liability almost always covers claims first made and reported while the policy is active, for work on or after the retroactive date (the earliest date of work the policy covers).

Who asks compensation consultants for $2M?

$2M is on the higher end. It shows up when the client is larger or the work touches many employees or senior leaders:

• Large private employers and private equity owned companies redesigning pay across many locations.
• Boards and compensation committees hiring an outside advisor on executive pay.
• Hospital systems and health plans (see healthcare vendor requirements).
• Universities, state agencies and cities, where the request for proposal (the bid document the agency publishes) often sets the limit (see government contracts).
• HR consulting firms that subcontract pay work to you, or master services agreements (standing contracts that set one limit for every vendor).

How is $2M built?

At $2M, the limit is usually one primary policy (the policy that pays first) at $2M/$2M. In some cases, a $1M primary plus a $1M excess layer (a second policy that pays after the first is used up) reaches $2M. The excess should follow form, meaning it uses the primary policy's terms. Confirm with the client that a primary policy plus follow-form excess meets the clause.

Compensation consultants usually buy standard Professional Liability, sometimes called a miscellaneous form for service businesses. If you also sell pay software, Technology E&O may fit better. A commercial umbrella almost never covers Professional Liability. Additional insured status (naming your client on your policy) is not automatic on Professional Liability and is often limited. Some carriers will add a client, usually only for liability arising from your services, and others will not. Some clients accept a certificate of insurance instead, but check whether your contract specifically requires additional insured status.

What will underwriters ask for?

An underwriter decides whether to offer coverage and on what terms. Expect questions like these:

• Your service mix: executive pay, salary structures, bonus and commission plans, pay equity reviews and market pricing.
• Whether you advise boards or compensation committees, and whether any clients are publicly traded.
• Whether you run actual payouts, or only design and recommend.
• How you handle pay equity work, including whether an attorney directs it, and whether you advise on overtime or worker classification.
• Where your survey data comes from, and who reviews reports before they go out.
• Revenue, largest clients, prior claims, and your current policy and retroactive date.

What affects the cost?

• Type of work. Executive pay, board advice and pay equity reviews often get more underwriting attention than job descriptions or salary surveys alone.
• Revenue and client size. Bigger payrolls can mean bigger losses.
• Claims history. Prior claims can raise the price or narrow options.
• Limit and terms. A higher limit usually costs more. A higher retention (the amount you pay on each claim, like a deductible) usually lowers the premium. Defense outside the limit often adds cost.
• Controls. Written scopes and a second review of every report may help.

Frequently asked questions

Do I need $2M Professional Liability as a compensation consultant?

Only if your contract or client asks for it. $1M is more common, but a $2M per claim clause cannot be met with $1M per claim.

Is $1M/$2M enough if my contract says $2M?

Usually not. $1M/$2M pays only $1M per claim, so it may not meet a clause that says $2M per claim. Request quotes for $2M/$2M or a $1M primary plus follow-form excess. Some large clients ask for $3M or more.

I carry $1M Professional Liability as a compensation consultant. How do I get $2M?

Request new quotes through Morrow for a $2M policy, or a $1M primary plus follow-form excess. Morrow can ask carriers to keep your retroactive date where the market allows. In many cases it makes sense to keep your current policy in force until the new one starts. Report anything that could become a claim to your current carrier before you switch.

What kinds of claims could a compensation consultant face?

Three hypothetical examples. A client says your market data set pay ranges too high, and it overpaid staff for two years. A pay equity review misses a gap, and the client blames your analysis after employee complaints. A bonus formula pays out far more than the board expected. Even if you did nothing wrong, the policy may pay defense costs, subject to its terms.

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.