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

If a client contract asks your HR consulting firm for $2M, it means your Professional Liability (E&O) policy must pay up to $2M for one claim, not only $2M a year in total.

What does a $2M 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. A $2M clause might read like this:

• Per claim: the most the policy pays for one claim. Here, $2M.
• Aggregate: the most the policy pays for all claims in one policy year. Here, also $2M.
• Claims-made: Professional Liability almost always covers claims made and reported while the policy is active, for work done on or after the retroactive date.

Who asks HR consultants for $2M?

You may see $2M from:

• Large or multi-state employers hiring help with handbooks, policies or compliance reviews.
• Companies planning a layoff or restructuring that want help with selection and notices.
• Boards and law firms hiring you to run a workplace investigation, especially into a senior leader.
• Employers asking for pay equity, job classification or compensation studies.
• Hospitals, banks, schools and public agencies with formal vendor insurance rules.
• Staffing and recruiting clients, who may also ask you to carry employment practices liability (EPL) coverage for your own employees.

Smaller clients often ask for less. See $1M Professional Liability for HR consultants.

How is $2M built?

At $2M, the limit is usually one primary policy (the policy that pays first) written at $2M/$2M. HR consultants often buy a Miscellaneous Professional Liability form, written for service firms. A commercial umbrella almost never covers Professional Liability, so it usually cannot fill the gap (see Does an umbrella cover Professional Liability?).

If a client such as a large hospital system or a multi-state employer asks for more, see $3M Professional Liability for HR consultants. $3M and above is rarely found online and often needs a broker. Morrow can help you find it.

Watch for one HR-specific gap. Many Professional Liability forms exclude claims from your own employees. Some also limit claims of discrimination that come from your advice to clients. Ask how each quote treats a client's employee claim before you buy. EPL coverage usually covers your own staff and job applicants, not your clients. Check the actual wording.

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, expect questions like these:

• Your services and the share of revenue from each: handbooks, investigations, training, compensation, benefits, recruiting, outsourced HR.
• Whether you advise on layoffs, terminations, worker classification or leave decisions, or only train and document.
• Whether you make or approve hiring and firing decisions, or handle payroll, benefits enrollment, client funds or background checks.
• Your largest clients, their employee counts and industries.
• Your engagement letters, prior claims or incidents, and your current policy with its retroactive date.

What affects the cost?

• Type of HR work. Investigations, layoffs and classification advice usually cost more to insure than training or recruiting support.
• Revenue and client size. Larger employers mean larger possible losses.
• Claims history. Past claims can raise the price or limit your options.
• Retention. This is the amount you pay on each claim before the policy pays, like a deductible. A higher one usually lowers premium.
• Policy terms. Full prior acts coverage (work done before the policy started) and defense outside the limit often add cost.

Frequently asked questions

What kinds of claims can an HR consultant face?

Claims usually allege that your HR advice caused a client a financial loss. Here is a hypothetical: you advise a client to treat a group of workers as exempt from overtime. The workers later sue the client for back pay, and the client blames your advice. Wage-and-hour claims are often excluded or limited, and the policy generally does not pay the unpaid wages themselves. Check the wage-and-hour and worker classification wording.

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

Usually not. A $1M/$2M policy pays $1M per claim, so it may not meet a $2M per claim clause. Ask Morrow to request new quotes for a $2M policy, keeping your retroactive date and prior acts coverage where the market allows. Start the new policy by the date the contract requires, and keep your current policy until then so there is no gap. Report anything that could become a claim to your current carrier before that policy ends.

Can my client be added as an additional insured on my HR consulting policy?

Usually not. Additional insured status is not automatic under a standard Professional Liability policy. Many clients accept a certificate of insurance, a document that summarizes your limits and policy dates. Check your contract to see what it requires.

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.