$2M Professional Liability (E&O) Insurance for Test Prep Companies

A $2M Professional Liability (E&O) requirement means your test prep company's policy must cover up to $2M per claim for mistakes in your work, often in large district, university or employer contracts.

What does a $2M requirement mean for test prep companies?

Professional Liability (E&O, short for Errors and Omissions) covers claims that your teaching, materials or advice caused a client a financial loss. A $2M clause may 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: 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).

Who asks test prep companies for $2M?

Many test prep companies are asked for $1M, or for no set limit when families are the only clients (see $1M for test prep companies). $2M tends to show up when the contract is large or public:

• Large urban or county school districts buying SAT, ACT or state exam prep for many schools at once.
• State universities and medical, law or business schools running MCAT, LSAT, GMAT or bar prep programs.
• State workforce agencies and government training contracts for licensing exam prep.
• Large employers, such as hospital systems or accounting firms, paying for staff licensing prep.

How is $2M built?

At $2M, the limit is usually one primary policy (the policy that pays first) written at $2M/$2M. Test prep companies often buy Miscellaneous Professional Liability (a general form for service businesses that do not fit a named profession) or an education services form. If you mainly sell your own app or online platform, Technology E&O may fit better . Fewer $2M options are offered online than $1M options. Morrow can help you find them.

A commercial umbrella almost never covers Professional Liability, so it usually cannot get you from $1M to $2M (see Does a commercial umbrella cover Professional Liability?). Many carriers will not add a client as an additional insured (a party that gets its own rights under your policy) on Professional Liability. Some will, usually only for liability arising from your services. Clients more often accept a certificate of insurance (a one page proof that you have the policy). If you teach students under 18, the contract may also ask for separate abuse and molestation coverage.

What will underwriters ask for?

An underwriter decides whether to offer coverage and on what terms. At $2M, test prep companies are often asked:

• Which exams you teach, and how you update content when an exam changes.
• Whether you give schools or employers diagnostic scores, placement advice or readiness reports they act on.
• Your largest contracts, who signs them, and the contract requiring $2M.
• Score or pass guarantees in your marketing.
• Instructor hiring and training, prior claims and your current retroactive date.

What affects the cost?

• Exams and client type. Licensing and graduate exam prep may be priced differently from small group tutoring.
• Contract size. A district wide program means a larger possible loss.
• Promises you make. Pass rates, score guarantees and readiness claims can raise questions and narrow terms.
• Claims history. Prior claims can raise the price or limit options.
• Retention and defense terms. A higher retention (what you pay on each claim before the policy pays, like a deductible) usually lowers the premium. Defense outside the limit often adds cost.

Frequently asked questions

What kind of claim could reach $2M for a test prep company?

A claim over a large contract, where the client seeks the cost of redoing a whole program, is the kind that could reach $2M. Here is a hypothetical example. A state agency says your licensing prep course for hundreds of trainees used content from a retired exam outline, and it seeks the cost of rerunning every cohort. A demand like this is not always covered. A policy may pay defense costs on a covered claim.

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

Usually not. A $1M/$2M policy pays only $1M per claim, so confirm with the client that your policy meets the clause as written. If you carry $1M today, request new quotes for a $2M/$2M policy through Morrow, keeping your retroactive date and prior acts coverage (coverage for work you did before the new policy starts) where the market allows. Keep the old policy in force until the new one starts, and report anything that could become a claim to your current carrier first.

Do I need $2M Professional Liability as a test prep company?

Only if your contracts require it. For family clients alone, $2M is often more than needed. If a large district, university or government contract requires $2M per claim, carrying less may keep you from signing. A few larger contracts ask for $3M (see $3M for test prep companies).

Does Professional Liability cover a refund under a score guarantee?

Often not. Many policies exclude refunds of your own fees and promised results. Related losses may still be covered, depending on the wording.

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.