Risk management

Professional liability

Clause

Contractor shall obtain, at Contractor’s expense, and keep in effect during the term of this Contract, Professional Liability Insurance covering any damages caused by an error, omission or any negligent acts related to the services to be provided under this contract by the Contractor and Contractor’s subcontractors, agents, officers and employees in an amount of not less than $_____________ per occurrence, incident or claim.    Annual aggregate limit shall not be less than $ _______.  If coverage is on a claims made basis, then either an extended reporting period of not less than 24 months shall be included in the Professional Liability insurance coverage, or the Contractor shall maintain either tail coverage or continuous claims made liability coverage, provided the effective date of the continuous claims made coverage is on or before the effective date of this Contract, for a minimum of 24 months following the later of (i) Contractor’s completion and Agency’s acceptance of all Services required under this Contract, or, (ii) Agency or Contractor termination of contract, or, iii) The expiration of all warranty periods provided under this Contract

When do they apply?

  • Use if Contractor’s work is in a professional field requiring specialized knowledge and intellectual skills. This includes professionals who are licensed or accredited as well as non-licensed professionals. Examples include: medical providers, engineers, accountants, educators, etc.
  • Do not use in trade services contracts limited to physical or manual work

Notes

  • Covers liability resulting from errors and omissions or mistakes made in performance of professional services/judgment. Most policies cover economic losses, failure to perform, error or omission of product or service, and contract disputes.
  • Examples of contractors who can buy this coverage include: doctors or medical practitioners, architects, engineers, counselors, therapists, IT professionals, accountants, translators, educators, insurance brokers, testing facilities and research laboratories. In many cases, contractors can buy Professional Liability coverage from groups or associations that they belong to. Coverage is specific to the nature of the profession.
  • For attorneys, the Oregon State Bar Professional Liability Fund provides $300,000 aggregate limits of coverage. Participation in this program is mandatory for all attorneys engaged in private practice whose principal office is in Oregon. If the potential risk exposure is greater than this amount, consider requesting higher limits of coverage. Other alternatives include the addition of risk control measures (doc) or other non-insurance risk transfer clauses in your contract document.
  • The terms "Professional Liability" and "Errors and Omissions" mean the same thing and are used interchangeably. A Professional Liability policy only covers the acts of the insured (professional). This type of policy will never name another person or entity as “additional insured ”. However, a Contractor can purchase a policy that covers all of its employees. Professional Liability and Errors and Omissions insurance policies are generally issued on a “claims made” basis. Require "Tail" Coverage for all "claims made" coverage.
  • Some professions may be unable to obtain Professional Liability Coverage. If the exposures arising out of duties under the contract could be interpreted as “negligence”, as opposed to “negligence arising out of professional judgment”, require Commercial General Liability. Many times, it is appropriate to require both Professional Liability and Commercial General Liability Coverage. When a Professional Liability insurer denies the claim, the state may be able to recover the loss under the Commercial General Liability Coverage.  It is important to perform a case-by-case basis risk assessment on each contracting situation. Consider requiring a Performance Bond when agencies not only want the work completed, but want it to be done on time and according to specifications.

Additional information

  • Coverage - The coverage in a Professional Liability Policy pays for damages. These are damages that the insured becomes legally obligated to pay because of injury to another person. For the coverage to apply, this injury must be the result of a "wrongful act." A "wrongful act" means any act, error, or omission in the furnishing of the type of professional services that the policy was intended to cover.
  • Exclusions - Professional Liability insurance doesn´t cover the Contractor if they don´t perform the duties of the contract, or don´t perform them correctly. The exception is if the professional makes an error or omission in their decisions.
  • Limitations - Professional Liability Coverage generally limits certain types of exposures or losses. These reduced limits are called sub-limits. Examples of the types of exposures that have a sub-limit include allegations of sexual misconduct and corporal punishment. Often a Professional Liability Policy will have a limit of $1 million with a sub-limit of $25,000 for sexual misconduct.

Setting limits

  • Use the Risk Assessment tool to assess the risks of the particular contract to determine appropriate insurance limits and risk control measures. Ask questions such as, but not limited to: What kind of error or omission in professional judgment could the Contractor make while performing contractual activities?  How bad could it be? If professional liability coverage is not available, will Commercial General Liability coverage protect the state from almost all that could go wrong?

Errors and omission coverage

Clause

Contractor shall obtain, at Contractor’s expense, and keep in effect during the term of this Contract, Errors and Omissions Insurance covering any damages caused by an error, omission or any negligent acts of Contractor, its sub-contractors, agents, officers, or employees under this Contract in an amount of not less than $_____________ per occurrence, incident or claim.  Annual aggregate limit shall not be less than $ _______.  If coverage is on a claims made basis, then either an extended reporting period of not less than 24 months shall be included in the Professional Liability insurance coverage, or the Contractor shall maintain either tail coverage or continuous claims made liability coverage, provided the effective date of the continuous claims made coverage is on or before the effective date of this Contract, for a minimum of 24 months following the later of (i) Contractor’s completion and Agency’s acceptance of all Services required under this Contract, or, (ii) Agency or Contractor termination of contract, or, iii) The expiration of all warranty periods provided under this Contract

When do they apply?

  • Use if Contractor’s work is in a professional field requiring specialized knowledge and intellectual skills. This includes professionals who are licensed or accredited as well as non-licensed professionals.  Examples include: medical providers, engineers, accountants, educators, etc
  • Do not use in trade services contracts limited to physical or manual work.

Notes

  • Covers liability resulting from errors and omissions or mistakes made in performance of professional services/judgment. Most policies cover economic losses, failure to perform, error or omission of product or service, and contract disputes.
  • Examples of contractors who can buy this coverage include: doctors or medical practitioners, architects, engineers, counselors, therapists, IT professionals, accountants, translators, educators, insurance brokers, testing facilities and research laboratories. In many cases, contractors can buy Professional Liability coverage from groups or associations that they belong to. Coverage is specific to the nature of the profession.
  • For attorneys, the Oregon State Bar Professional Liability Fund provides $300,000 aggregate limits of coverage. Participation in this program is mandatory for all attorneys engaged in private practice whose principal office is in Oregon. If the potential risk exposure is greater than this amount, consider requesting higher limits of coverage. Other alternatives include the addition of risk control measures (doc) or other non-insurance risk transfer clauses in your contract document.
  • The terms "Professional Liability" and "Errors and Omissions" mean the same thing and are used interchangeably. A Professional Liability policy only covers the acts of the insured (professional). This type of policy will never name another person or entity as “additional insured ”. However, a Contractor can purchase a policy that covers all of its employees. Professional Liability and Errors and Omissions insurance policies are generally issued on a “claims made” basis. Require "Tail" Coverage for all "claims made" coverage.
  • Some professions may be unable to obtain Professional Liability Coverage. If the exposures arising out of duties under the contract could be interpreted as “negligence”, as opposed to “negligence arising out of professional judgment”, require Commercial General Liability
  • Many times, it is appropriate to require both Professional Liability and Commercial General Liability Coverage. When a Professional Liability insurer denies the claim, the state may be able to recover the loss under the Commercial General Liability Coverage.  It is important to perform a case-by-case basis risk assessment on each contracting situation. Consider requiring a Performance Bond when agencies not only want the work completed, but want it to be done on time and according to specifications.

Setting limits

  • Use the Risk Assessment tool to assess the risks of the particular contract to determine appropriate insurance limits and risk control measures. Ask questions such as, but not limited to: What kind of error or omission in professional judgment could the Contractor make while performing contractual activities?  How bad could it be? If professional liability coverage is not available, will Commercial General Liability coverage protect the state from almost all that could go wrong​