Yes, in many cases: a new firm with no sales yet can often get Professional Liability (E&O) before its first contract, because insurers use projected revenue, work history and planned services.
The short answer
- Yes, in many cases. Underwriters (the insurance company staff who decide whether to offer coverage) use your projected revenue (what you expect to earn in year one), your work history and your planned services.
- Your retroactive date (the earliest work date the policy covers) usually starts the day the policy begins.
- It often helps to have the policy start before you begin the work and before the date your contract requires proof of coverage. Check your own contract for the exact timing.
What does a Professional Liability requirement mean for a new firm?
Professional Liability (E&O, for Errors & Omissions) covers claims that your work or advice cost a client money. A first client often asks for it in the contract, even when your business is a few weeks old:
Illustrative contract wording
Prior to commencing any Services, Consultant shall obtain and maintain Professional Liability insurance with limits of not less than $1,000,000 per claim and $2,000,000 aggregate, and shall provide a certificate of insurance evidencing such coverage.
Illustrative example only. Actual contract wording varies.
- "Prior to commencing": the client usually expects the policy to be active before you do any work.
- Per claim and aggregate: the most paid for one claim, and the most paid for all claims made during the policy period.
- Certificate of insurance: a one-page summary of your coverage that you send to the client.
- Limit still matters. Your limit is the most the policy will pay. Some contracts ask for $1M per claim and $2M aggregate. Others ask for $2M per claim. A $1M per claim limit caps each claim at $1M, while a $2M per claim limit allows up to $2M on one claim. Read your clause before you apply. See Professional Liability limits explained.
Who asks a new business for proof of Professional Liability?
- Corporate clients that use a master services agreement (MSA), one contract that covers all their vendors
- Former employers hiring you back as an outside consultant
- Prime contractors bringing you in as a subconsultant
- Government agencies and healthcare organizations, which may ask new vendors for proof of coverage before onboarding
- Staffing and placement firms that set you up with end clients
How does the retroactive date work for a new firm?
Professional Liability is almost always claims-made. It covers claims first made and reported while the policy is active, for work done on or after the retroactive date. For more, see what a retroactive date is.
- Brand-new firm, no prior coverage: the retroactive date usually matches the policy start date. Work you did before that date is usually not covered.
- Owner had coverage before: if you had your own policy as a freelancer or under an earlier company, some markets may offer prior acts coverage, which reaches back to that older retroactive date. It usually depends on the market, proof of the prior policy and having no gap in coverage.
- Owner worked as an employee: your new policy usually does not cover work you did for a past employer. Whether that employer's policy responds depends on its wording. Tell Morrow about this gap when you send your information.
The form matters too. Many consultants and service firms buy Miscellaneous Professional Liability, a general form for services that do not fit a set profession. Some groups buy a different form: Technology E&O for IT and software firms, medical malpractice for doctors, lawyers professional liability for attorneys, A&E (architects and engineers) Professional Liability for design firms, and real estate E&O for agents.
What will underwriters ask a new business for?
- An application describing the services you plan to offer
- Projected revenue for the first year, and the split by service if you have more than one
- A resume or short summary of the owner's work history, licenses and certifications
- The contract that sets the requirement, and your standard client agreement if you have one
- Any prior Professional Liability policy in your name, with its retroactive date
- Answers about any known incidents or past claims tied to the owners
What affects the cost for a new business?
- The services you will provide and the kinds of clients you will serve
- Your projected revenue and expected contract sizes
- The owner's experience and any past claims
- The limit the contract requires
- Your retention, the amount you pay on a claim before the policy pays, similar to a deductible
Good to know
Be realistic with your projection. If your real revenue ends up far from your guess, the price may change at renewal. Some policies are audited, which means the insurer checks your actual revenue after the policy year. Ask Morrow how yours would be priced.
Frequently asked questions
Can I buy Professional Liability before my business is formed?
Usually not in the business's name, because the policy needs a legal business name. If your company is still being formed, ask Morrow before you apply. A policy written in your own name may not carry over to the new company automatically, so the right steps depend on the policy and the insurer.
Do I need a signed contract before I can apply?
Not always. Many applications only need a description of your services and a projected revenue figure. If a client has sent a requirement, send it to Morrow with your application so it can be checked against the quotes.
Do I also need General Liability as a new business?
Often yes, because many contracts ask for both. General Liability usually covers injury to other people and damage to their property, while Professional Liability covers claims that mistakes in your work or advice cost a client money. See Professional Liability vs General Liability.
Does anything change if I am a one-person business?
In many cases the process is similar. Underwriters usually still look at projected revenue, your background and your services. See Professional Liability for solo freelancers.
Looking for Professional Liability before your first contract? Morrow can help.
Send Morrow your contract's insurance requirement and any current or past Professional Liability policy. We can review them against the requirement and request quotes based on your projected revenue and services.
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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.