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Professional Indemnity insurance worldwide and in Cyprus

Professional liability insurance (PLI), also called professional indemnity insurance (PII) and commonly known as Errors and Omissions Insurance (E&O), is a form of insurance that helps protect sole proprietors and companies providing professional consulting and/or other services from the full legal and defense costs arising from the clients' negligence (error, omission) claims and damages awarded in such civil claims. Over the past decades, this type of insurance has become widespread throughout the world and in Cyprus in particular. The lever of progress in this case, oddly enough, was the direct consumers of the services of professional specialists, who from year to year take an increasingly active position in protecting their rights and interests.
The object of professional liability insurance is the civil liability of the insured for the harm/ damage caused to the life, health and/or property of third parties in the course of their conscientious exercise of professional activity. Errors and omissions, as well as negligence committed on the part of the policyholder in the performance of his professional duties, if the harm is caused unintentionally, may serve as the basis for making claims. Professional liability insurance can take different forms and names depending on the profession.
Quite often professional liability insurance coverage includes the costs of attorneys, including if the litigation turns out to be unfounded. Insurance coverage does not include criminal prosecution or all forms of legal liability under civil Law, but only those specifically listed on the insurance policy. Forms of civil liability that are not listed in the insurance policy may be covered by other types of insurance. For certain types of professional activities, professional liability insurance is compulsory by Law.
In this article Pitsas Insurances will try to answer the most important questions on topics related to professional liability insurance, namely:
1. What are the reasons for professional liability insurance? 2. Insurance coverage. How does it work? 3. Professional liability insurance depending on the profession. 4. Insurance against errors and omissions. Gaps in coverage. 5. Extended period of validity of insurance compensation (insurance indemnity). 6. Civil liability insurance.

1. The main reasons for professional liability insurance.

The main reason for professional liability is that depending on the type of liability, the policy will only cover physical harm, property damage, personal injury claims or unfair advertising. Other forms of insurance cover employer liability, civil liability and manufacturer liability. But various professional services and products can give rise to legal claims without causing any of the specific types of harm that are covered by the listed insurances. The main claims covered by professional liability insurance are negligence, misrepresentation, violation of the principles of fair dealing and fair trade, as well as inaccurate recommendations and advice.
Examples of such situations include the following:
  • If the software product does not work properly it may not cause physical, personal or advertising harm. So, claims that are covered by the general liability insurance policy will not be affected. However, this software product can cause financial losses that can potentially be associated with the developer's distortion of the product's capabilities.
  • If a custom product cannot cause harm to people or property other than the product itself, a product liability insurance policy may cover indirect damages like losses from business interruptions, but generally does not cover costs to redesign, repair or replace a defective product. Claims for these damages against the manufacturer of the product may be covered by professional liability insurance.

2. How does professional liability insurance coverage work?

Professional liability insurance is usually based on a claim basis, which means that the insurance policy covers only those claims that were made during the period of its validity. More specifically, the standard insurance will provide the insured persons with indemnification for any claim or claims made during the policy period due to any error covered by the policy, any omission or negligence committed in the course of the insured person's professional activities during the policy period. Claims that may relate to the incidents prior to the commencement of the coverage cannot be covered unless the Professional Liability Insurance Contracts have a retroactive date earlier than the commencement date of the Contract. In this case, all claims made during the Contract period that relate to the incidents occurring after the retroactive date are also covered by the Insurance Contract. Retroactive coverage is usually offered as an add-on to include the coverage in your insurance policy for the work and services you have already performed.
Cyber liability, which encompasses database violations and other technology issues, is not necessarily included in the mainstream of professional liability insurance policies, although it is reasonably available in the insurance market.
Some insurance policies are stricter than others. While a number of typical wordings are designed to meet the minimum basic coverage, making it easy to compare, others differ significantly in the coverage they provide. For example, default may be included in the coverage if an incident occurs and has been reported by the policyholder to the insurer during the policy period. Words with significant legal differences may appear similar to those without a legal background, which can lead to misinterpretation of the terms of the Insurance Contract. Thus, coverage for the "negligent act, error or omission" reimburses the insured for the losses/ consequences incurred only as a result of any professional error or omission or negligence (i.e. the modifier "negligent" in the wording of the contract applies to only one, and not to all three categories of action/inaction, although any non-lawyer reader might assume otherwise). The “negligent act, error or omission” clause is much more restrictive and could take away your coverage in the event of a “negligent error or omission” lawsuit.
Coverage usually lasts as long as the policyholder provides the covered service or product, plus the statute of limitations applicable to the service and/or product provided. Cancellation of the Insurance Contract earlier than the specified period would actually correspond to a situation in which the insured would never have insurance coverage for any incidents, as any client could initiate a claim or legal proceedings in relation to the services or products that were received prior to the date of the limitation period. A break in insurance can lead to a so-called "gap in coverage", which effectively renders all the previous actions useless.
The establishment of the fact of an insured event and the occurrence of liability on it, as a rule, is decided by the court, which also determines the amount of damage and insurance compensation. Cases of pre-trial resolution of claims are not excluded when there is indisputable evidence of the harm caused by the insured and recognition of the amount of damage by them.

3. Professional liability insurance depending on the profession.

For medical professions, professional liability insurance is often associated with medical errors and negligence, while insurance agents, consultants, brokers and lawyers use error and omission (E&O) insurance.
As a rule, professional liability insurance policies are purchased by specialists and companies providing accounting, engineering and financial services, carrying out construction, maintenance (general contractors, plumbers, etc., many of which are interconnected) and transport services. Some charities and non-profit organizations also choose to get professional liability insurance.
This type of insurance is quite common all over the world and is considered one of the main risk management tools for both individuals and companies. At the same time, the legal requirements for compulsory professional liability insurance in different countries are not identical. Even in the European Union, despite efforts to harmonize regulations applicable in this market segment, each country has its own framework Legislation, which is why there is a wide range of contracting options. In the recent past, Italy passed Legislation obliging all categories of self-employed professionals to acquire this form of insurance, but this Legislation came into force only after specifying all the key parameters. Finaccord, one of the leading international research and consulting companies, estimated that only in the top ten EU countries (Austria, Belgium, France, Germany, Italy, Netherlands, Poland, Spain, Switzerland and the United Kingdom) the total cost of professional liability insurance increased from $6.15 billion in 2009 to $7.5 billion by the end of 2017.

4. Insurance against errors and omissions. Gaps in coverage.

Errors and omissions (E&O) insurance, which can exclude negligent actions, except for errors and omissions ("mistakes"), is most often used by consultants and brokers, as well as agents of various kinds, including notaries, real estate brokers, insurance agents themselves, appraisers, management consultants and information technology providers (there are specific E&O policies for software developers, freelancers, website developers, etc.), architects, landscape designers, engineers, lawyers, third-party business administrators, professionals for quality control, controllers and analysts and many others. A mistake that could result in financial harm to another can occur in almost any transaction in many professions.
Gaps in coverage.
A gap in coverage or a lack of coverage may be the result of the insurance not being renewed (extended) the same day it expires. Professional liability coverage gaps are common because most professionals do not realize what it is and do not understand the severity of the potential consequences, often believing that they do not need continuous coverage if they have not carried out professional activity for certain months.
A gap in coverage should not be confused with the termination or non-renewal due to retirement or death. In these cases, you can purchase an extension of the coverage period - a set period of time after the expiration of the Contract, during which a claim can be filed and the coverage will work as if the claim was filed during the Contract period. The possibility of extending the period of insurance coverage depends on the policy of the insurance company with which the Insurance Contract is concluded.

5. Extended period of insurance coverage ("tail").

Extended period of insurance coverage covers the events that occur during the validity of the insurance policy, but their existence is determined after its expiration. Many types of insurance related to the claims have provisions for extended coverage if the insurance policy itself has not been renewed. A typical extended period extends the reporting period for claims only up to 6 months or one year after the expiration of the Contract. With this option, the cost of the Insurance Contract increases.
“Previous action” (or “nose”) coverage provides for the transfer of the retroactive date from the old Contract to the new one, which eliminates the need to purchase a “tail” cover for the previous Contract.

6. Civil liability insurance.

Some Professional Liability Insurance Contracts provide coverage that is more extensive than the typical standard Contract. Professional liability insurance usually does not include defamation (libel and slander), breach of Contract, breach of warranty, intellectual property, personal injury, security, Contract value. Such options can be included in the Insurance Contract additionally.
At the same time, there is a rather long list of exceptions in terms of additional coverage of certain types of civil liability, so that such forms of obligation as employer’s liability and state liability, which are the subject of other forms of insurance, are not covered by Professional Liability Insurance Contracts.

You can calculate the cost of a professional liability insurance policy on the website of our company by filling out a questionnaire at the link:


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