A type of liability coverage designed to protect traditional professionals
(e.g., accountants, attorneys) and quasi-professionals (e.g., real estate
brokers, consultants) against liability incurred as a result of errors and
omissions in performing their professional services. Although there are a few
exceptions (e.g., physicians, architects, and engineers), most professional
liability policies only cover economic or financial losses suffered by third
parties, as opposed to bodily injury (BI) and property damage (PD) claims. This
is because the latter two types of loss are typically covered under commercial
general liability (CGL) policies. The vast majority of professional liability
policies are written with claims-made coverage triggers. In addition,
professional liability policies commonly contain what are known as
"shrinking limits," meaning that unlike CGL policies (where defense
costs are paid in addition to policy limits), the insurer's payment of
defense costs reduces available policy limits. Accordingly, when attempting to
determine appropriate policy limits, insureds must consider the fact that
because defense costs are often a high proportion of any claim settlement or
judgment, they may need to purchase higher limits than they would have for
indemnity only. Note, however, that many professional liability policies
(particularly for the medical, hospital, long-term care, and medical facility
lines of professional liability) do provide defense coverage in addition to
policy limits, an approach that is more in line with the structure of a CGL
policy. The most common exclusions in professional liability policy forms are
for BI, PD, and intentional/dishonest acts.