Professional Liability Insurance
Real E&O claims across professional services
Professional liability claims can arise from errors, omissions, or alleged failures in any professional service. These scenarios show how E&O coverage protects diverse practices.
Professional liability claims often involve complex allegations and lengthy defense. These real-world examples illustrate common claim patterns and important lessons for risk management.
Tax preparation error results in IRS penalties
What Happened
An accountant missed a reporting requirement on a client's business tax return, resulting in $50,000 in IRS penalties and interest. The client sued for the penalties plus their cost to hire another firm to resolve the issue.
Coverage Response
E&O coverage paid for defense costs ($35,000) and the settlement ($65,000), which included the penalties and remediation costs. The deductible was $5,000.
Key Takeaway: Checklists and peer review help catch errors before filing. The firm implemented a second-review requirement for all complex returns after this claim.
Client alleges flawed business recommendation
What Happened
A management consultant recommended a software system that proved incompatible with the client's operations. The client claimed $200,000 in wasted implementation costs and lost productivity.
Coverage Response
The E&O policy defended the claim. Investigation showed the consultant had documented the client's requirements and the software met those specifications. Case settled for $75,000.
Key Takeaway: Documentation is critical. The consultant's detailed engagement letter and requirement specifications limited liability. Always document scope and client-provided information.
Website developer sued for delayed project
What Happened
A web developer's project ran six months behind schedule. The client claimed they lost $150,000 in online sales they would have generated had the site launched on time.
Coverage Response
E&O covered the defense. The developer showed that client-side delays (content, feedback) caused most timeline issues. Case dismissed after 14 months of litigation.
Key Takeaway: Project documentation saved this developer. Time tracking and email records proving client delays were essential to the defense. Defense costs alone totaled $60,000.
Agent fails to disclose property defect
What Happened
A real estate agent didn't disclose a known foundation issue to buyers. After purchase, the buyers discovered the problem and sued for repair costs ($45,000) and diminished value.
Coverage Response
E&O provided defense, but investigation revealed the agent knew about the issue from the seller's disclosure. Coverage was provided with reservation of rights, and the case settled for $80,000.
Key Takeaway: Always disclose known material defects. The agent's failure to pass along the seller's disclosure nearly voided coverage under the policy's dishonesty exclusion.
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