$5M Professional Liability (E&O) Insurance for Management Consultants

For management consultants whose client contract asks for $5M, the limit is often built with a primary Professional Liability policy plus one or two excess layers that follow form, if the contract allows it.

What does a $5M requirement mean for management consultants?

Professional Liability (E&O, errors and omissions) covers claims that your advice or work cost a client money, subject to the policy terms. Many consulting firms buy Miscellaneous Professional Liability, a general form for professions without their own. A $5M clause might read like this. Watch the retroactive date (the earliest work date the policy covers):

Professional Liability is almost always claims-made: the claim must be made and reported while the policy (or an extended reporting period) is active, and the work must follow the retroactive date.

• Per claim and aggregate: the most paid for one claim, and for all claims in a year.
• "Excess or umbrella": the client allows more than one policy to add up to the limit, but a commercial umbrella (extra liability coverage above general liability) almost never covers Professional Liability. You would usually need excess Professional Liability layers.
• Extended reporting period: also called tail coverage, it adds time to report claims after a policy ends. See tail coverage.
• Every layer counts: each layer usually needs the same retroactive date and tail. Your contract may differ.

Who asks management consultants for $5M?

Management consultants may see $5M requests from:

• Large companies whose master services agreement (MSA) sets one high limit for every advisor, including any subcontractors you bring onto the engagement.
• Private equity sponsors hiring you for deal diligence (checking a company before a purchase) or turnarounds.
• Government agencies funding large programs.
• Banks, insurers and health systems hiring you for restructuring or regulatory work.

How is $5M built?

Primary pays first. Excess pays only after the layer below it is used up. "$2M xs $3M" means a $2M layer that sits above the first $3M.

Compared with $3M, $5M more often needs two or more layers instead of one primary policy. $10M usually needs a longer tower. $2M is often a single primary policy.

If your work is mostly building or running software, Technology E&O may fit better than a consulting form.

What will underwriters ask for?

An underwriter decides whether to offer coverage and on what terms. Each insurance company (carrier) may review:

• Your revenue by service line, such as strategy, mergers and acquisitions (M&A) diligence, restructuring and program management.
• Whether you only advise, or also run programs or make decisions for the client.
• Your largest engagement, any success fees, and whether proposals promise results.
• Your contracts, scope, loss runs (a report of past claims) and current policy.

What affects the cost?

• Service mix. Deal diligence and restructuring work may cost more to insure than training, because possible losses can be larger.
• Tower design. The primary layer often costs the most per $1M. Higher layers often cost less per $1M.
• Claims history. Past claims may limit offers.
• Retention and defense terms. Retention is like a deductible. A higher one often lowers premium.

Frequently asked questions

What kind of claim could reach $5M for a management consultant?

A claim that your work cost a client millions could reach $5M. These hypothetical examples show how. Whether any is covered depends on the policy wording and exclusions (things the policy does not cover). (1) A diligence report misses a weak customer contract, and the buyer says it overpaid. (2) A restructuring plan misses its savings target, and the client sues for the gap plus fees. (3) A client says a missed deadline on a public program caused penalties and seeks them from you.

I already have $1M or $2M Professional Liability. How do I get to $5M?

Request new quotes through Morrow, either a new $5M primary policy or excess layers above a primary. Morrow can request quotes that keep your retroactive date and prior acts coverage (coverage for work done before the new policy starts) where the market allows. Report anything that could become a claim to your current carrier first.

Can my client be an additional insured on my Professional Liability as a management consultant?

Usually not. An additional insured is someone added to your policy so it can cover them too. Professional Liability policies usually do not allow this, though a few may in limited cases, and each layer would need to agree. Many clients ask only for a certificate of insurance, a one-page proof of coverage. It does not add anyone to the policy. Check what your contract 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.