Insurance 101: Professional Liability Policies and Prior Knowlege

Professional liability policies—also known as errors and omissions (E&O) or malpractice policies—provide medical practitioners, lawyers, accountants, engineers, architects, and other professionals and their firms with a defense and, if necessary, indemnification for claims arising out of purportedly negligent acts, errors or omissions in the performance of professional services. Coverage is typically written for a term of one year on a “claims-made” or “claims made and reported” basis, with the policies covering claims made (or both made and reported to the insurance company, depending on policy language) during the policy term or any extended reporting period.

Professionals pay high premiums for their policies and naturally expect that they will be covered for claims that are made during the policy period. Virtually all professional liability policies, however, contain provisions that purport to limit or exclude coverage based on the policyholder’s knowledge of acts or omissions that could give rise to a claim. These provisions include prior acts exclusions, which exclude coverage for claims arising out of an act, error, or omission, committed prior to the inception of the policy where the insured knew or could have reasonably foreseen that the act, error, or omission might result in a claim; “notice provisions,” which typically require the policyholder to notify its insurance company upon becoming aware of any negligent act, error, or omission that reasonably could be expected to be the basis of a claim; and language contained in policy applications, which generally require the applicant to state whether it knows of any act, omission, error, or circumstance that might be expected to be the basis of a claim.