Professional Liability (E&O) Requirements for Government Contracts

Government bid requests (RFPs) often name a Professional Liability limit, may allow claims-made coverage and may set the years to keep it, so this guide helps consultants and contractors bidding on public work.

What does a government Professional Liability (E&O) requirement mean?

Professional Liability (E&O, short for Errors and Omissions) covers claims that your work or advice caused a client a financial loss. In government work, the requirement usually sits in the RFP or its sample contract. An example clause reads:

• Limits: per claim is the most the policy pays for one claim. Aggregate is the most it pays for all claims in a policy period (usually a year). Meet or exceed both. A $1M per claim limit does not meet a $2M per claim clause, even if the aggregate matches. See Professional Liability limits explained.
• Claims-made wording: the policy covers work done on or after the retroactive date (the earliest work date it covers). See claims-made vs. occurrence.
• Years after completion: you keep the policy in force, or buy tail coverage (also called an extended reporting period: extra time to report claims for past work after a policy ends), for the years listed. See tail coverage.

Who asks for Professional Liability on government work?

Public buyers often write the insurance rule into a sample contract. Requirements come from:

• Some federal solicitations for consulting, IT, training or program support
• State departments, colleges and universities
• Cities, counties, school districts, transit agencies and port authorities
• Prime contractors (firms that hold the main contract) that pass the government's terms down to subconsultants (firms they hire)

Consultants often buy Miscellaneous Professional Liability, a general policy for advice and other non-technical services. IT and software firms usually need Technology E&O. Architects and engineers usually buy A&E (architects and engineers) Professional Liability. Ask which form the RFP accepts.

How do I plan coverage before the award?

1. Read the insurance section of the RFP and sample contract. Note the limit, the years after completion and when the certificate of insurance is due.
2. Compare it with your current policy's limits, retroactive date and services.
3. Request quotes during the bid period, so you know the cost before you set your price.
4. Many contracts ask that the policy start on or before the contract start date, with a retroactive date on or before the start of services. Check your clause.
5. Plan for the years after completion. Renew each year with the same retroactive date, or, if you stop, ask about tail coverage.

Need a higher limit than you carry? Morrow can request quotes for a new primary policy (the policy that pays first) at the full limit, or for excess layers (extra policies that pay after the primary limit is used up). Excess should follow form, which means it uses the same terms as the primary policy.

Ask to keep your retroactive date and prior acts coverage (cover for work done before the new policy starts) where the market allows. Report known incidents to your current carrier before you switch. Then confirm with the agency or prime that primary plus follow-form excess meets the clause.

What will underwriters ask for?

An underwriter (the person at the insurer who decides on coverage) usually asks for:

• Your services and your government revenue
• The RFP insurance section and the scope of work
• Contract size, and whether you are the prime or a subcontractor
• Loss runs (reports of past claims) and anything that could become a claim

What affects the cost?

• Services and contract size. Costly-error work and larger contracts usually cost more.
• Limit and layers. Higher limits usually cost more.
• Claims history. Prior claims can raise the price.
• Retention and terms. A higher retention (what you pay on a claim before the policy pays, like a deductible) usually lowers the premium. Defense outside the limit often adds cost.

Frequently asked questions

Can the agency be named as additional insured on my Professional Liability policy?

It is not automatic, and it is often not available. An additional insured is a party added to your policy for its own protection. Professional Liability covers your own errors, though a few carriers may add an agency for liability arising from your work. Confirm with the agency or prime what it requires, and whether the carrier will agree, before you bid.

Can my umbrella policy cover a higher Professional Liability limit?

Usually not. A commercial umbrella almost never covers Professional Liability. For a higher limit, look at a Professional Liability policy at that limit or follow-form excess layers.

Do I need Professional Liability (E&O) to bid on a government contract?

You need it when the RFP or contract says so, and many public consulting, IT and design contracts do. Check when proof is due.

Does a subconsultant need the same limit as the prime?

Often, yes. Primes usually pass the agency's insurance terms down in the subcontract, so the limit and years after completion may match. Ask the prime for the exact wording before you quote your price, and send it to Morrow with your current policy.

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.