$10M Professional Liability (E&O) Insurance for Third-Party Administrators

A $10M Professional Liability (E&O) requirement for a third-party administrator (TPA) usually comes from a very large employer, public plan or trust fund, and is often met with a primary policy plus excess layers.

What does a $10M requirement mean for third-party administrators?

Professional Liability (E&O, short for Errors and Omissions) covers claims that a mistake in your services cost a client money. For a TPA, that often means a claims, eligibility or plan setup error. A $10M clause might read:

• Per claim and aggregate: the most paid for one claim, and for all claims in a policy year. All your plans share the aggregate.
• Other lines are named: fiduciary liability covers claims about plan decisions or plan assets. A crime bond covers theft of funds. Each is a separate policy.
• Claims-made, for three years after: this policy covers only claims made while it is in force, so you would usually renew every layer, with the same retroactive date (the earliest date of work covered).
• Primary and excess allowed: this clause permits a stack. If yours is silent, confirm with the client that primary plus follow-form excess meets the clause.

Who asks third-party administrators for $10M?

Large self-funded employers, public entities and trust funds most often ask a TPA for $10M. Most clients ask for $1M, $2M or $3M, and some for $5M. $10M reflects how many claim dollars one client sends through you. It often comes from:

• Self-funded employers with tens of thousands of covered people.
• States, counties and large cities bidding out health or workers' compensation claims work, where the limit is often set in the request for proposal (RFP). See government contract requirements.
• Large union and multiemployer trust funds.
• Self-insured groups and public risk pools that send you claim payments.
• Health plans and insurers outsourcing claims or appeals.

How is $10M built?

A primary policy pays first. Each excess layer pays only after the layers below it are used up. "$5M xs $5M" means a $5M layer above the first $5M. Compared with $5M, often a primary plus one excess layer, $10M usually adds a second excess layer, so there are more policies to match and renew. A commercial umbrella almost never adds to Professional Liability (see why).

Each excess layer should follow form, meaning it uses the primary policy's terms. If one layer adds its own exclusion for claim funds or stop-loss filings (notices of very large claims sent to the employer's stop-loss insurer), coverage could end partway up the tower. Many policies pay defense costs inside the limit, so confirm each layer treats defense the same way.

What will underwriters ask for?

Carriers may ask for:

• Your service mix: medical, workers' compensation, disability, COBRA, spending accounts or retirement.
• People covered, plans, annual claim dollars paid and your largest client.
• Whether you make final claim and appeal decisions or follow the sponsor's rules.
• How you hold plan funds and who approves payments.
• How plan rules are loaded and tested, and how you track stop-loss notice deadlines.
• The agreement asking for $10M, five years of loss runs (reports of past claims) and your current retroactive date.

What affects the cost?

• Your services. Final claim decisions and handling plan funds usually cost more to insure than recordkeeping alone.
• Size of your book. More lives and larger payments mean one error can repeat across thousands of claims.
• Tower shape. The primary layer often carries much of the cost.
• Contract terms and claims history. Broad indemnity (a promise to repay the client's losses) or past claims can raise the price or shrink the limit offered.
• Retention and defense terms. A higher retention (like a deductible) usually lowers premium. Defense outside the limit costs more.

Frequently asked questions

What could a $10M claim look like for a TPA?

A $10M claim could come from one setup error repeated across thousands of claims. These cases are hypothetical. A benefit change is loaded wrong, and an employer overpays claims for two years. A stop-loss notice is missed on several very large claims, and the employer is left with the bills. Many policies limit or exclude the claim dollars themselves.

How do I go from $2M to $10M Professional Liability as a TPA?

Request new quotes for a new primary policy at the higher limit, or for excess layers above a new primary. Morrow can request both, asking carriers to keep your retroactive date and prior acts coverage where the market allows. Report any known incidents to your current carrier before you switch.

Can the employer or plan be an additional insured?

Usually not. Professional Liability protects you, not the client. Many clients accept a certificate of insurance (a one-page proof of coverage) that lists every layer and its limit.

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.