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

If a client or RFP asks your benefits consulting firm for $2M, your Professional Liability (E&O) policy must pay up to $2M per claim, and $2M/$2M limits usually meet it.

What does a $2M requirement mean for employee benefits consultants?

Professional Liability (E&O, short for Errors and Omissions) covers claims that your advice or services caused a client a financial loss. A $2M clause might read like this:

• Per claim: the most the policy pays for any one claim. Here, $2M.
• Aggregate: the most the policy pays for all claims in a policy year. A $1M/$2M policy pays only $1M per claim, so it may not meet this clause. See Professional Liability limits explained.
• Claims-made: Professional Liability almost always covers claims made and reported while the policy is active, for work on or after the retroactive date (the earliest date of work covered).
• Defense costs: many Professional Liability policies pay defense costs inside the limit, so legal fees reduce what is left for a settlement.

Who asks employee benefits consultants for $2M?

Smaller engagements often call for $1M (see $1M Professional Liability for employee benefits consultants). $2M often appears when the plan, or the client, is bigger:

• Mid-sized and larger employers hiring a consultant for plan design and renewals.
• Self-funded plan sponsors, where the employer pays claims directly.
• Cities, school districts and other public employers, often with the limit written into the request for proposal (RFP).
• Union and multiemployer benefit trust funds.
• Professional employer organizations (PEOs, which co-employ staff for small firms) and third-party administrators (TPAs, which run benefit plans for employers) that subcontract consulting or compliance work.

How is $2M built?

At $2M, the limit is usually one primary policy (the policy that pays first) written at $2M/$2M. A $1M primary plus a $1M excess layer (extra limit that sits on top of the primary) can also work. The excess should follow form, which means it uses the same terms as the primary. Confirm with the client that primary plus follow-form excess meets the clause.

The type of policy matters too. Consultants who earn commissions as licensed agents often buy insurance agents E&O. Fee-based consultants often buy Miscellaneous Professional Liability, a general form for advice and service firms. Fiduciary liability, which covers duties owed to benefit plans, is a separate policy.

A commercial umbrella almost never covers Professional Liability (see Does a commercial umbrella cover Professional Liability?). Clients also usually cannot be added as an additional insured. Clients often accept a certificate of insurance (a one-page proof of coverage), but your contract controls what proof is required.

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:

• Your revenue split between fees and commissions, and by service, such as health plan consulting, retirement plan advice, compliance and enrollment.
• How many clients are self-funded, and whether you place or advise on stop-loss coverage.
• Whether you act as a fiduciary for any plan or give investment advice.
• Whether you send eligibility files to carriers, run enrollment, handle COBRA notices (letters that tell former employees how to keep health coverage) or prepare Affordable Care Act (ACA) reporting.
• Your largest clients and whether you use written contracts.
• Prior claims, anything that could become a claim, and your current policy and retroactive date.

What affects the cost?

• Service mix. Self-funded plans, stop-loss work, retirement advice and fiduciary duties may raise the cost to insure.
• Revenue and client size. Larger employers mean bigger possible losses.
• Administrative tasks. Enrollment, eligibility files and notices add chances for error.
• Claims history. Prior claims can raise the price or narrow your options.
• Retention and defense terms. A retention is the amount you pay on each claim before the policy pays, like a deductible. A higher one usually lowers premium.

Frequently asked questions

Do I need $2M Professional Liability as an employee benefits consultant?

Only if your contract or RFP requires it. Check the per claim and aggregate numbers in the clause, then compare them with your current policy. Morrow can review both.

I carry $1M today. How do I get to $2M?

Send Morrow your current policy and the $2M requirement, and Morrow can request new quotes for a $2M policy. Morrow can ask insurers to keep your retroactive date and prior acts coverage where the market allows. Many firms keep the current policy until a new one starts, so there is no gap. Report anything that could become a claim to your current carrier before that policy ends.

Does Professional Liability cover fiduciary claims?

Not always. Some Professional Liability policies exclude fiduciary duties or claims under ERISA, the federal law that governs most employer benefit plans. If you act as a fiduciary, Morrow can include fiduciary liability in your quote request.

Is $2M enough for a large self-funded client?

Not always, because it depends on the contract. Some large employers, trust funds and public entities ask for more. See $3M Professional Liability for employee benefits consultants.

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.