In our experience, brokers sometimes struggle to explain the key differences between a Commercial General Liability (“CGL”) policy, its Errors & Omissions (“E&O”) extension and a Professional Indemnity (“PI”) policy. In this article we offer a suggestion on how to approach that explanation.
A PI Policy is designed to protect professionals from financial losses that may arise due to claims of negligence, errors, omissions, or wrongful acts in the performance of Professional Services. This policy is often critical for professionals who provide advice, services, or expertise to clients, as it helps safeguard their financial interests and reputation.
A “Professional Service” is a service provided by a person with specialised knowledge and expertise in a particular field or occupation. These services typically require a high level of skill, training, and education and are often regulated by professional bodies or associations.
By contrast, CGL policies primarily cover Injury (including bodily injury, sickness or death) and Damage (property damage including theft) claims resulting from accidents or incidents that occur during the course of business operations. It provides very little cover for claims arising from pure economic losses. The Errors & Omissions extension can fill this gap.
A pure economic loss arises where a third party suffers a loss without there being Injury or Damage. It is also known as a financial loss since they have a purely pecuniary (monetary) nature.
Both E&O and PI would cover pure financial losses arising out of professional services and both would typically exclude losses arising out of Injury or Damage.
This begs the obvious question: What’s the difference between a PI policy and the cover offered under the E&O extension of a general liability policy? That difference can vary greatly from one underwriter to another, but usually the E&O extension is intended to cover PI related losses where exposure is not big enough to justify a separate PI policy.
Simply put, the E&O extension in a CGL policy provides similar cover to that found in a PI policy. It is designed to provide coverage for certain professional errors, omissions, or mistakes that may not be covered by a typical CGL policy. This extension is particularly important for businesses that provide professional services or advice where that professional services exposure is incidental to the business but not a key part of its focus. The E&O extension helps bridge the gap between CGL and PI policies.
A comparison between E&O and the Defective Workmanship extension in a General Liability policy may offer some clarity as to the nature of E&O and PI cover.
Errors & Omissions |
Defective Workmanship |
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Excludes liability arising out of Products |
Only covers liability arising out of or in connection with Products |
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Excludes Injury and Damage |
Covers Injury or Damage |
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Covers pure economic loss |
Excludes pure economic loss |
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Covers advice of a professional nature given for a fee |
Excludes advice of a professional nature given for a fee |
For example, both the E&O and Defective Workmanship extensions provide cover for liability which arises when the Insured’s work is not up to standard. However, if a security company fails to discover stowaways on a ship, costs (pure financial losses) are incurred returning them to their origin; however, if theft (Damage) occurs because a security company failed to install the alarm system correctly, this would be a defective workmanship claim.
People sometimes think that the Negligent Advice section of a CGL policy provides a form of PI cover. It is very important to understand that there is no overlap between the cover offered between them. The following table illustrates the differences between a PI policy and the cover offered under the Negligent Advice section.
Professional Indemnity |
Negligent Advice |
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