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Bodily Injury and Property Damage Exclusions in Professional Liability Insurance (Errors & Omissions) — Workarounds and Gaps

Professional Liability (Errors & Omissions, or E&O) insurance is designed to protect professionals against claims arising from negligent acts, errors, omissions, or poor advice in the performance of professional services. A common and critical limitation in most E&O policies in the United States is the exclusion of bodily injury (BI) and property damage (PD)—exposures that traditionally fall under Commercial General Liability (CGL) or specialized products. This article explains why those exclusions exist, how they create coverage gaps, practical workarounds for U.S. businesses (with a focus on New York, California, and Illinois markets), and what it costs to close these gaps.

Why BI and PD Are Typically Excluded from E&O

  • Different risk pools and underwriting: E&O covers financial harm from professional mistakes. Accidental physical injury or tangible property damage is a different risk that insurers price and underwrite under CGL or specialty policies.
  • Moral hazard and control: If E&O covered BI/PD broadly, it would encourage claims that are operational (slips, falls, construction defects) rather than purely professional mistakes.
  • Clear allocation of liability: Courts and insurers prefer distinct coverage lines so insureds and claimants know whether professional negligence or general operations caused the loss.

Because of these reasons, most E&O forms issued by large carriers in the U.S. expressly exclude BI and PD. That exclusion can be problematic for professions that straddle advice and on-site work (architects/engineers, consultants who install hardware, tech companies with on-site equipment, contractors).

Common Coverage Gaps and Real-World Examples

  • Architect or engineer whose design leads to a partial building collapse — structural damage and injuries are often excluded from a standard E&O policy.
  • IT consultant who installs network hardware and the equipment fails, damaging servers (PD) or causing heat/fire resulting in bodily injury — general E&O typically won’t respond.
  • A healthcare billing consultant whose error causes denial of care that results in a patient injury — E&O may respond for the billing error, but BI-related claims could implicate other coverages or exclusions.

Special cases:

  • Architects & Engineers (A&E) professional liability forms sometimes offer optional PD coverage for design defects, but BI is still limited or excluded. Always confirm with the issuing carrier.

Workarounds to Manage BI/PD Exclusions

Below are practical solutions used by U.S. businesses—tailored to common legal and market realities in New York City, San Francisco, and Chicago.

1. Buy the right combination: E&O + CGL (or Umbrella)

  • CGL covers BI and PD arising from premises, operations, products, and completed operations.
  • Combine a standard E&O policy for professional exposures with CGL to address operational BI/PD.
  • For many small professional firms in NYC, San Francisco, or Chicago, a $1M/$1M E&O paired with a $1M CGL is common.

2. Endorsements that extend limited third‑party coverages

  • Some carriers offer endorsements such as “Third-Party Property Damage Extension” or “Limited PD for Design-Built Projects”—these are narrow and often expensive.
  • Always read the endorsement to verify sub-limits and exclusions.

3. Buy an A&E policy when applicable

  • Architects & Engineers can often add limited PD to their professional policy for design-related property damage.
  • Example: in California, A&E firms often purchase E&O with PD extensions because of high building and litigation costs.

4. Contractual risk transfer + insurance requirements

  • Use indemnity clauses and require subcontractors to carry appropriate CGL/E&O limits.
  • Require Certificates of Insurance naming you as additional insured for CGL (but note E&O is typically non-additional‑insured).

5. Specialized stand-alone policies

  • For tech/hardware integrators, consider technology-integrator liability or products liability in addition to E&O.
  • Cyber & technology E&O products sometimes include limited third-party PD for data loss-related business interruption (not physical damage).

6. Purchase higher limits or umbrella coverage

  • Umbrella/Excess liability policies can amplify CGL limits to better protect against severe BI/PD losses that might otherwise exceed primary policy limits.

Cost Considerations (U.S. market, examples)

Premiums vary by industry, revenue, claims history, and location. Below are approximate U.S. market figures and carrier examples (figures are representative ranges as marketed by carriers and broker marketplaces).

Coverage Type Typical U.S. Small Business Limit Typical Annual Premium Range (approx.) Example Carriers
E&O (professional services) $1M/$1M $500 – $2,500 Hiscox, Insureon marketplace
CGL (premises/ops/products) $1M per occurrence $400 – $1,500 Travelers, CNA
A&E Professional Liability (with PD endorsement) $1–5M limits $2,000 – $10,000+ Chubb, Hartford
Combined/Customized programs Variable $1,500 – $10,000+ Chubb, Beazley

Sources: Insureon cost guides and company product pages (Hiscox, Chubb) provide market context and advertised starting points:

Notes:

  • Hiscox advertises startup E&O policies for small professionals that can start in the ~$500/year range for basic $1M limits depending on class and revenue.
  • Chubb and large admitted carriers typically price higher due to broader forms and higher underwriting standards; small professional accounts may begin at $1,500–$5,000/year depending on complexity and location.

In high-exposure jurisdictions like New York City and San Francisco, expect premiums and retentions to be higher—often 10–40% above national averages—because claim frequency and severity are higher.

Pros & Cons of the Workarounds

  • E&O + CGL: broad protection, but higher total premium and potential coverage disputes over “which policy responds.”
  • Endorsements: cheaper targeted fix, but often with low sub-limits and many exclusions.
  • Contractual transfer: reduces insured’s balance-sheet exposure but does not create primary insurance where none exists—enforcement risk remains.
  • Specialized policies (A&E, installer, products): best fit for hybrid-risk firms but costlier.

Practical Steps to Close Gaps and Avoid Surprises

  1. Read exclusions carefully—see A Practical Guide to Reading Exclusions in Your Professional Liability Insurance (Errors & Omissions) Policy.
  2. Negotiate contract language and insurance requirements—see Contractually Assumed Liability: How Professional Liability Insurance (Errors & Omissions) Treats Indemnities.
  3. Consider endorsements only after reviewing their sub-limits and exclusions—learn more in Endorsements to Close Common Gaps in Professional Liability Insurance (Errors & Omissions).
  4. If a dispute arises about whether BI/PD is excluded, follow claims best practices and legal steps early—see When Exclusions Trigger a Coverage Dispute: Steps to Manage a Professional Liability Insurance (Errors & Omissions) Claim.

Final Checklist for U.S. Businesses (NY, CA, IL)

  • Do you have separate E&O and CGL policies? If not, get quotes for both.
  • For on-site or construction-related services, ask about A&E or installer’s policies with PD coverage.
  • Verify contractual indemnities and required subcontractor insurance limits.
  • Get quotations from both specialized E&O carriers (e.g., Hiscox for small firms) and broader-market insurers (e.g., Chubb, Travelers) to compare scope and cost.
  • Document operations that could blur lines between professional advice and physical work and discuss these with your broker.

Bodily injury and property damage exclusions in E&O are common and deliberate. The right solution in the U.S. market is rarely a single policy—it's a tailored program that mixes E&O, CGL (and possibly A&E or product-specific products), prudent contract language, and underwriting that reflects the service-delivery realities in locations like New York, San Francisco, and Chicago.

External references

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