$1M Professional Liability (E&O) Insurance for HR Consultants

For HR consultants asked for $1M in a client contract: Professional Liability (E&O) pays up to $1M if a client says your HR work caused a financial loss.

What does a $1M requirement mean for HR consultants?

Professional Liability (E&O, short for Errors and Omissions) covers claims that your advice or services caused a client a financial loss. An employer hiring you might use a clause like this:

• Per claim: the most the policy pays for any one claim ($1M here).
• Aggregate: the most the policy pays for all claims in one policy year ($2M here). A $1M/$1M policy would not meet this clause. A $1M/$2M policy would usually satisfy the limit part of either wording. Check the rest of the clause, such as how long coverage must stay in place.
• Claims-made: the policy covers claims made and reported while it is active, for work done on or after the retroactive date (the earliest date of work the policy covers). Prior acts coverage means coverage for work done before the policy started. See claims-made vs. occurrence.
• "Covering the services": the policy should name the HR work you actually do, such as investigations.

Who asks HR consultants for $1M?

You may see a $1M requirement from:

• Small and mid-sized employers outsourcing HR or hiring a fractional HR leader.
• Larger HR firms and staffing agencies that subcontract work to consultants.
• Private equity firms and their portfolio companies.

$1M is a common limit, though contracts vary. Larger or multi-site employers more often ask for $2M. A $1M policy will not meet a $2M clause, so compare the limits first (see $2M Professional Liability for HR consultants).

How is $1M built?

At $1M, the limit is usually one primary policy (the policy that pays first), without excess layers (extra coverage that sits on top of the primary policy). Many HR consultants buy Miscellaneous Professional Liability, a general form for service businesses. If you sell HR software, Technology E&O may fit better.

Defense costs often count against the limit on small-business Professional Liability, so legal fees can use up part of a $1M limit (see defense costs inside or outside limits). Additional insured status (adding a client to your policy for protection under it) is not automatic on Professional Liability, and many policies do not offer it. Some may offer a limited version for liability arising from your services. Many clients accept a certificate of insurance (a one-page summary of your coverage) instead, but check what your contract requires.

What will underwriters ask for?

An underwriter is the person at the insurer who decides whether to offer coverage and on what terms. For HR consultants, they usually ask:

• Your services and the share of revenue from each: handbooks, investigations, compensation, benefits, training, recruiting or outsourced HR.
• Whether you handle payroll, act as employer of record (legally the employer of a client's workers) or hold client funds.
• Whether you advise on pay and overtime classification or benefits plans, place candidates or run background checks.
• Prior claims, anything that could become a claim, and your current retroactive date.

What affects the cost?

• Services mix. Investigations, terminations and benefits advice may cost more to insure than training.
• Revenue and client size. Bigger clients mean bigger possible losses.
• Claims history. Prior claims can raise the price.
• Aggregate and retention. $1M/$2M usually costs more than $1M/$1M. A higher retention (the amount you pay per claim before the policy pays) usually lowers the premium.
• Policy terms. Defense outside the limit and full prior acts coverage may add cost.

Frequently asked questions

Do I need $1M Professional Liability as an HR consultant?

Only if your contract or client asks for it. Many clients ask for $1M, and some ask for $2M or more, so check the insurance section of each contract.

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

No, a $1M/$1M policy usually does not meet a $1M/$2M clause. Request new quotes for a $1M/$2M policy through Morrow. Morrow can ask markets to keep your retroactive date and prior acts coverage where they allow it. Keep your current policy in force until the new one starts, and report anything that could become a claim to your current carrier before it ends.

Does Professional Liability cover lawsuits by my client's employees?

Often not, because many policies exclude or limit employment-related claims, so check the exclusions. If a client's employee sues only the client, that claim is usually a matter for the client's own insurance, such as an employment practices liability (EPL) policy, if the client has one. Your own EPL policy, if you have one, is the policy that usually responds to claims by your own staff, depending on its wording.

What happens if I stop consulting?

Claims first made after your policy ends are generally not covered. An extended reporting period (a "tail") gives extra time to report claims about past work. It usually must be bought soon after the policy ends.

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.