15.3 Professional Liability and Errors & Omissions

Arkansas Property & Casualty Insurance State

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1 Standalone Coverage Map

Standalone Coverage Map

2 Introduction: Arkansas Property & Casualty Insurance Exam Overview

Arkansas Property & Casualty Exam Overview

3 National Portion: Insurance Fundamentals

1.1 Risk, Hazards, Perils, and the Law of Large Numbers 1.2 Insurable Interest, Indemnity, and Other Insurance Principles 1.3 Insurance Contract Law and Elements 1.4 Policy Structure: Declarations, Insuring Agreement, Conditions, Exclusions 1.5 Parties, Agents vs. Brokers, and Authority

4 National Portion: Property Insurance Concepts

2.1 Causes of Loss / Named-Peril vs. Open-Peril 2.2 Valuation: ACV, Replacement Cost, and Functional Value 2.3 Coinsurance and the Coinsurance Formula 2.4 Deductibles, Limits, and Loss Settlement 2.5 Common Property Policy Conditions and Clauses

5 National Portion: Dwelling Policies (DP)

3.1 Dwelling Policy Forms DP-1, DP-2, DP-3 3.2 Dwelling Coverages A-E and Other Coverages 3.3 Dwelling Perils, Conditions, and Endorsements 3.4 Mobile Home and Specialized Dwelling Coverage

6 National Portion: Homeowners Policies - Forms & Section I

4.1 Homeowners Forms HO-2 through HO-8 and Eligibility 4.2 Section I Coverages A-D and Additional Coverages 4.3 Section I Perils Insured Against and Exclusions 4.4 Replacement Cost vs. ACV and Loss Settlement in Homeowners

7 National Portion: Homeowners Policies - Section II & Endorsements

5.1 Section II Coverages E (Liability) and F (Medical Payments) 5.2 Homeowners Conditions and Duties After Loss 5.3 Common Homeowners Endorsements (scheduled property, water backup, ordinance or law)

8 National Portion: Personal Auto Policy - Liability & Injury

6.1 Personal Auto Policy Structure and Eligibility 6.2 Part A Liability and Supplementary Payments 6.3 Part B Medical Payments 6.4 Part C Uninsured/Underinsured Motorists

9 National Portion: Personal Auto Policy - Physical Damage & Duties

7.1 Part D: Coverage for Damage to Your Auto 7.2 Exclusions and Part E: Duties After an Accident 7.3 Part F: General Provisions, Endorsements, and No-Fault Concepts

10 National Portion: Liability Insurance Concepts

8.1 Negligence, Torts, and Legal Liability 8.2 Defenses, Damages, and Vicarious Liability 8.3 Occurrence vs. Claims-Made Triggers 8.4 Bodily Injury, Property Damage, and Personal/Advertising Injury

11 National Portion: Commercial Property Insurance

9.1 Commercial Package Policy Structure and Common Policy Conditions 9.2 Building and Personal Property Coverage Form (BPP) 9.3 Causes of Loss Forms (Basic, Broad, Special) 9.4 Business Income and Extra Expense 9.5 Commercial Property Endorsements and the BOP

12 National Portion: Commercial General Liability - Coverages

10.1 CGL Coverage A: Bodily Injury and Property Damage Liability 10.2 CGL Coverage B: Personal and Advertising Injury, Coverage C: Medical Payments 10.3 Who Is an Insured and Supplementary Payments

13 National Portion: Commercial General Liability - Limits, Triggers & Exclusions

11.1 CGL Limits of Insurance and Aggregates 11.2 Occurrence vs. Claims-Made CGL and Retroactive Dates 11.3 Key CGL Exclusions and Endorsements

14 National Portion: Commercial Auto Insurance

12.1 Business Auto Coverage Form and Covered Auto Symbols 12.2 Commercial Auto Liability and Physical Damage 12.3 Motor Carrier / Trucking and MCS-90 12.4 Garage Coverage Form and Garagekeepers 12.5 Commercial Auto Endorsements

15 National Portion: Workers Compensation

13.1 Workers Compensation Statutory Background and Benefits 13.2 Part One (Workers Comp) and Part Two (Employers Liability) 13.3 Premium Basis, Experience Modification, and Classification 13.4 Other States, USL&H, and Federal Acts 13.5 Workers Comp Exclusions and Endorsements

16 National Portion: Other Commercial Lines - BOP, Crime & Marine

14.1 Businessowners Policy (BOP) in Depth 14.2 Crime and Fidelity Coverage 14.3 Inland Marine and Nationwide Marine Definition 14.4 Ocean Marine Coverages (Hull, Cargo, Freight, P&I)

17 National Portion: Other Commercial Lines - Specialty & Professional

15.1 Farm and Agricultural Coverage 15.2 Commercial Umbrella and Excess Liability 15.3 Professional Liability and Errors & Omissions 15.4 Directors & Officers and Employment Practices Liability

18 National Portion: Other Commercial Lines - Surety, Flood & Specialty

16.1 Surety and Fidelity Bonds 16.2 National Flood Insurance Program (NFIP) 16.3 Cyber, Aviation, and Other Specialty Lines

19 National Portion: Insurance Regulation & Market Conduct

17.1 State Regulation, Licensing, and the McCarran-Ferguson Act 17.2 Rates, Forms, Solvency, and Guaranty Associations 17.3 Producer Authority, Fiduciary Duty, and Company Operations

20 National Portion: Ethics & Unfair Trade Practices

18.1 Unfair Trade Practices and Unfair Claims Settlement 18.2 Producer Ethics, Errors & Omissions Exposure, and Fiduciary Conduct 18.3 Privacy, Fraud, and Consumer Protection

21 Chapter 1: Arkansas P&C Insurance Regulation & Licensing

1.1 Arkansas Insurance Department 1.2 Arkansas P&C Producer Licensing Requirements 1.3 Arkansas Producer Responsibilities

22 Chapter 2: Arkansas Property Insurance

2.1 Arkansas Homeowners Insurance 2.2 Arkansas Commercial Property Insurance

23 Chapter 3: Arkansas Casualty & Auto Insurance

3.1 Arkansas Auto Insurance Requirements 3.2 Arkansas Liability Insurance 3.3 Arkansas Workers' Compensation Insurance

24 Chapter 4: Arkansas Ethics & Professional Conduct

4.1 Ethical Practices and Consumer Protection

15.3 Professional Liability and Errors & Omissions

Key Takeaways Explain This Topic AI

Professional liability/E&O covers economic loss from negligent professional acts - a gap the CGL excludes.

Most professional policies are claims-made: coverage requires the claim be first made and reported in the policy period for acts on or after the retroactive date.

Advancing the retroactive date creates a permanent coverage gap; an Extended Reporting Period (tail) protects against late-reported claims.

Defense-within-limits (eroding limits) means defense costs reduce the limit available for settlement, unlike the CGL.

Malpractice (medical/legal) and E&O (financial/technical) are the two branches of professional liability.

Last updated: June 2026

Professional Liability and Errors & Omissions

Professional liability - often called errors and omissions (E&O) - covers economic loss a client suffers because of a professional's negligent act, error, or omission in rendering professional services. It fills the CGL's biggest gap: the CGL covers bodily injury and property damage but excludes financial harm arising from professional advice or services . An accountant who misfiles a return, an insurance agent who fails to bind requested coverage, or an architect whose design specs cause a budget overrun all face E&O claims, not CGL claims.

There are two broad branches: malpractice (medical/legal/dental professions, where bodily injury can result) and E&O (financial-services and technical professions, where the harm is usually economic).

The Claims-Made Trigger

Most professional liability policies are claims-made , not occurrence. This is the single most heavily tested concept in the line. A claims-made policy responds only if the claim is first made against the insured and reported during the policy period (or extended reporting period), and the wrongful act occurred on or after the retroactive date .

• Element Occurrence Claims-Made
• Trigger Injury during policy period Claim made during policy period
• Retroactive date None Yes - acts before it are not covered
• Tail/ERP needed No Yes, to cover late-reported claims after expiration
• Long-tail exposure Insurer's Managed by retro date + ERP

Retroactive Date, Tail, and the Reporting Trap

The retroactive date is the earliest date a wrongful act can occur and still be covered. Acts before it are excluded permanently - even if the claim is reported during an active policy. When an insured switches carriers, advancing (moving forward) the retro date creates a coverage gap for acts between the old and new dates.

The Extended Reporting Period (ERP), or tail , covers claims reported after the policy ends for acts that occurred during the policy term (after the retro date). ISO claims-made forms include a short basic tail (often 60 days for any claim, plus a 5-year window for claims arising from acts reported as circumstances) automatically, while a supplemental ERP (often unlimited time) must be purchased, typically at up to 100-200% of the expiring annual premium.

• Advancing the retro date = gap for prior acts (avoid)
• Buying a tail = protects against late-reported claims after retirement or carrier change
• Failing to report a known circumstance during the term = denied claim later

Defense, Limits, and Common Forms

Professional policies frequently use defense-within-limits (DWL) , also called "eroding" or "wasting" limits: defense costs reduce the available limit rather than being paid in addition to it. A $1,000,000 limit with $400,000 spent on defense leaves only $600,000 for the settlement - a critical difference from the CGL, where defense is usually outside the limit.

Worked example: An agent's E&O policy has a $1,000,000 each-claim limit with defense inside the limit and a $25,000 deductible (which also applies to defense). The carrier spends $150,000 defending and settles for $1,000,000. The insured's deductible erodes first; the policy's maximum exposure for indemnity + defense is the $1,000,000 limit, so the most the carrier pays net is $975,000 after the $25,000 deductible, and the insured may owe the settlement balance above the limit. Always read whether defense is inside or outside the limit before computing net recovery.

The Consent-to-Settle (Hammer) Clause and Specialty Forms

Many professional policies, especially medical malpractice and lawyers professional liability, include a consent-to-settle provision: the insurer cannot settle without the insured's agreement, protecting the professional's reputation. To discourage an insured from rejecting a reasonable settlement, the policy adds a "hammer" clause - if the insured refuses to settle within an offered amount and the case later resolves higher, the insured becomes responsible for the excess and a share of added defense.

Common specialty E&O forms candidates should recognize:

• Form / line Profession
• Insurance Agents & Brokers E&O Producers, failure-to-procure claims
• Lawyers Professional Liability (LPL) Attorneys, conflicts and missed deadlines
• Medical Malpractice Physicians, hospitals - occurrence or claims-made
• Technology / Cyber E&O IT vendors, software and data-breach errors

Note the structural pair: malpractice and LPL pay bodily-injury or reputational harm and often use consent-to-settle, while financial-services E&O (agents, accountants) pays economic loss and rarely gives the insured a settlement veto.