$2M Professional Liability (E&O) Insurance for E-discovery Vendors

For e-discovery vendors whose client contract asks for $2M, that usually means a policy paying up to $2M on one claim and $2M in total for the policy year, so a $1M/$2M policy often falls short.

What does a $2M requirement mean for e-discovery vendors?

Professional Liability (E&O) covers claims that a mistake in your services cost a client money. E&O stands for Errors and Omissions. A vendor agreement might read:

• Per claim and aggregate: the sample sets $2M for any one claim and $2M for all claims in one policy year.
• $1M/$2M is not $2M/$2M. A $1M / $2M policy pays at most $1M on one claim, even though "$2M" appears on your certificate of insurance (a one-page proof of coverage). A certificate on its own usually does not give the client coverage rights.
• Claims-made: Professional Liability almost always covers only claims made and reported while the policy is active, for work done on or after your retroactive date.

For more on reading limits, see Professional Liability (E&O) limits explained.

Who asks e-discovery vendors for $2M?

Smaller engagements often ask for $1M (see $1M Professional Liability for e-discovery vendors). Some clients go higher (see $3M Professional Liability for e-discovery vendors). $2M tends to come from:

• Mid-sized and large law firms sending you a big litigation or investigation matter
• Corporate legal departments signing a master services agreement for ongoing discovery work
• Courts and agencies buying hosting, processing or records services
• Clients with regulated data, such as health or financial records

Here is a hypothetical claim. A tagging error sends privileged (legally protected) emails out in a production, and the law firm blames your firm. One claim like this can test a $1M limit, which is why bigger matters bring bigger clauses.

How is $2M built?

A $2M requirement is often met by one primary policy (the policy that pays first) at $2M/$2M. Some clients accept a $1M primary plus a $1M excess layer (a second policy above it) that follows form, meaning it uses the primary's terms. Confirm with the client that this setup meets the clause. A commercial umbrella almost never covers Professional Liability, so it usually cannot fill the gap.

The form matters too. Document review vendors may buy Miscellaneous Professional Liability, a form for service firms that do not fit a standard class. Vendors that host or process client data often buy Technology E&O, sometimes with Cyber (cover for breach costs such as notices and investigation). See Technology E&O vs. Miscellaneous E&O.

What will underwriters ask for?

An underwriter is the person at the insurer who decides whether to offer coverage and on what terms. Expect questions like these:

• Your service mix and revenue from each: collecting data from devices, processing, hosting, managed review and production
• How much data you host and where it lives
• Quality control on privilege review, redaction (blacking out protected text) and production, including who signs off before data goes out
• Whether attorneys supervise your review teams, and how you vet contract reviewers
• Security steps such as limits on who can open data, encryption (scrambling data so outsiders cannot read it) and a second sign-in check
• The contract asking for $2M, loss runs (a report of past claims) for three to five years, known incidents, and your current policy with its retroactive date

What affects the cost?

• Service mix. Hosting and managed review often cost more to insure than collection alone.
• Data volume and sensitivity. More hosted data, or regulated data, can mean bigger losses from one error.
• Claims history. Past claims can raise the price or narrow your options.
• Retention. This is the amount you pay per claim before the policy pays, like a deductible. A higher retention usually lowers premium (the price of the policy).
• Defense terms and Cyber. Many policies pay defense costs inside the limit, which leaves less for a settlement. Defense outside the limit, or Cyber, usually adds cost.

Frequently asked questions

Do I need $2M Professional Liability as an e-discovery vendor?

Usually when your contract or client requires it, so check the clause and send it to Morrow to review. Attorneys giving legal advice usually buy lawyers professional liability, a separate form.

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

Usually not, because a $1M/$2M policy pays at most $1M on one claim. If the clause says $2M per claim, you generally need $2M/$2M, or primary plus excess if the client accepts it.

Does Professional Liability cover a breach of hosted data?

Often only in part, because many policies limit or exclude breach costs. Cyber is built for those costs.

Can a law firm be added as an additional insured on my policy?

Usually not. Professional Liability is built to protect you, the vendor, so clients usually cannot be added as an insured. A certificate of insurance on its own usually does not give the client coverage rights. Your contract's wording decides what the client needs, so send it to Morrow to review.

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.