Insurance Curator Understanding exclusions in your Professional Liability (Errors & Omissions, or E&O) policy is critical for protecting your business in the USA. Exclusions — the clauses that remove coverage for specific acts, services, or circumstances — determine whether an insurer must defend or indemnify you when a claim arises. This guide explains common exclusion language, how to spot problematic clauses, practical workarounds, and real-market cost context for firms in major U.S. markets (e.g., New York City, Los Angeles, Chicago, Austin, Miami).
Why exclusions matter (quick overview)
- Exclusions define your true coverage — the declarations page and limits tell you how much insurance you bought; exclusions tell you what’s actually covered.
- Small wording changes can change claims outcomes — ambiguous exclusions are frequent drivers of coverage disputes.
- Managing exclusions reduces uninsured risk — endorsements, contractual negotiation, and risk-transfer strategies can close gaps.
For a deeper run-down of the most common exclusion types and how to spot them, see Top Exclusions in Professional Liability Insurance (Errors & Omissions) and How to Spot Them.
How exclusions are typically structured
Exclusions are usually grouped into categories and can appear in different parts of the policy:
- “Exclusions” section — core section listing what’s not covered.
- Definitions — narrow or expand what terms (e.g., “professional services”) mean.
- Conditions — duties that must be met for coverage (e.g., notice requirements, cooperation).
- Endorsements/deletions — attached amendments that add or remove coverage.
Key contractual cues to watch for:
- “This policy does not apply to…”
- “Known prior acts, incidents, or circumstances”
- “Any claim arising out of…”
- “Expected or intended acts”
- “Bodily injury or property damage” vs. “personal injury” distinctions
Common exclusions, why they matter, and practical workarounds
| Exclusion | Typical wording | Why it matters | Practical workaround / endorsement |
|---|---|---|---|
| Prior acts / Known Claims | “Any claim based on facts known prior to the policy inception date.” | Kills coverage for disputes tied to past issues or ongoing problems. | Request a retroactive date endorsement or “prior acts” coverage. Negotiate notice wording. |
| Intentional acts & fraud | “Claims arising out of dishonest, fraudulent or criminal acts.” | Denies coverage where intentional misconduct is alleged — insurers may assert this broadly. | Add an “innocent insured” or “dishonesty” carve-back (rare). Maintain strong internal controls and documentation. |
| Contractually assumed liability | “Liability assumed under contract” | If your contract requires broad indemnities, E&O may exclude them. | Use an “insured contract” or contractual liability endorsement; negotiate contract limits and carve-outs. See Contractually Assumed Liability: How Professional Liability Insurance (Errors & Omissions) Treats Indemnities for more. |
| Bodily injury / property damage | “Bodily injury or property damage is excluded” | Traditional E&O excludes BI/PD — gaps if your work could cause physical damage. | Buy a combined policy or a separate GL/PD policy; consider a limited BI/PD endorsement. See Bodily Injury and Property Damage Exclusions in Professional Liability Insurance (Errors & Omissions) — Workarounds and Gaps. |
| Punitive damages | “Punitive or exemplary damages” excluded | Some jurisdictions allow punitive awards; exclusion leaves you exposed. | Purchase a targeted endorsement or rely on state law that may allow insurer defense. See Punitive Damages and E&O: Typical Exclusions and Alternative Protections. |
| War/terrorism | “War, hostilities, or terrorism” | Rare for professional practice but relevant for global firms. | Consider a separate terrorism policy or political risk coverage if relevant. |
Real-world examples & sample interpretations
-
Prior Claims/Knowledge: Clause — “Claims arising out of facts known to any insured prior to policy inception.”
Interpretation: If you had prior knowledge (email or client complaint) and didn’t report it, a carrier can deny a later claim. Action: Keep a claims log, provide early notice, and secure retroactive date coverage. -
Contractual Liability: Clause — “This policy does not apply to liability assumed by the insured under any contract.”
Interpretation: If your client contract requires you to indemnify them for third-party claims, your E&O may not respond. Action: Negotiate contract terms to limit indemnity or seek a contractual liability endorsement. -
Intentional Acts: Clause — “No coverage for dishonest, fraudulent, or criminal acts.”
Interpretation: Allegations of intentional wrongdoing will likely be excluded. Action: Maintain compliance programs and obtain evidence showing decisions were made in good faith.
Pricing context and market players (U.S. cities: NYC, LA, Chicago, Austin, Miami)
E&O pricing varies by profession, revenue, limits, claims history, and jurisdiction. Typical U.S. ranges (illustrative):
- Solo consultants/freelancers ($1M/$1M): roughly $300–$1,500/year.
- Small professional firms ($1M/$1M): $800–$5,000/year depending on exposure.
- High-risk or larger firms (specialized tech, architects/engineers): $5,000–$50,000+.
Insurer examples and market notes:
- Hiscox: markets small-business E&O with advertised entry points (Hiscox lists low starting prices for certain occupations; see their E&O product page) — good for solo consultants starting in cities like Austin or Miami. (Source: Hiscox US E&O info: https://www.hiscox.com/small-business-insurance/errors-omissions-insurance)
- The Hartford: widely used by small to mid-sized firms; quotes frequently range in the hundreds to low thousands annually for standard professional services. (Source: The Hartford professional liability overview: https://www.thehartford.com/business-insurance/professional-liability)
- Chubb / CNA / Travelers: often target larger, higher-limit or specialized risks (e.g., NYC law firms, engineering firms in California) with premiums that can exceed $10,000–$50,000 depending on limits and exposures. (See Chubb: https://www.chubb.com/us-en/business-insurance/professional-liability.aspx)
Broker data (Insureon, NerdWallet) show regional variance — metropolitan areas with higher litigation frequency (e.g., New York City, Los Angeles) often experience 20–40% higher premiums versus smaller markets like Austin or suburban Midwest cities. (Sources: Insureon E&O cost overview: https://www.insureon.com/errors-omissions-insurance/cost; NerdWallet E&O pricing guidance: https://www.nerdwallet.com/article/small-business/errors-and-omissions-insurance-cost)
Practical steps to manage exclusions (checklist)
- Review the full policy (Declarations, Definitions, Exclusions, Conditions, Endorsements).
- Flag and annotate exclusions that intersect with your contract obligations.
- Speak with your broker about endorsements: retroactive date, prior acts, contractual liability, cyber extensions, or “innocent insured” carve-backs.
- Negotiate client contracts to limit indemnity, require notice-before-suit, or mutual limitation of liability.
- Maintain robust documentation, change logs, and client communications that reduce coverage disputes.
- If a claim is denied, follow the steps in When Exclusions Trigger a Coverage Dispute: Steps to Manage a Professional Liability Insurance (Errors & Omissions) Claim.
For end-users wanting to close common gaps, review available endorsements in detail at Endorsements to Close Common Gaps in Professional Liability Insurance (Errors & Omissions).
When a denial happens: immediate actions
- Preserve all communications and claim notices.
- Notify your broker and insurer in writing; confirm reserve/defense position.
- Engage coverage counsel experienced in E&O disputes (especially in New York or California where precedent matters).
- Consider mediation or appraisal clauses in your contracts as alternative dispute resolution.
Final checklist before you sign any E&O policy
- Confirm retroactive date and prior-acts wording.
- Verify how the policy treats contractual indemnities.
- Ask for specific endorsements needed for your industry (technology errors, cyber, PI/PD limited coverage).
- Obtain written clarifications from insurer for any ambiguous exclusions.
- Compare quotes from multiple carriers (Hiscox, The Hartford, Chubb, Travelers, CNA) and evaluate defense approach (duty to defend vs. reimburse).
Sources and further reading
- Hiscox — Errors & Omissions Insurance: https://www.hiscox.com/small-business-insurance/errors-omissions-insurance
- The Hartford — Professional Liability Insurance: https://www.thehartford.com/business-insurance/professional-liability
- Insureon — Errors & Omissions Insurance Cost: https://www.insureon.com/errors-omissions-insurance/cost
- NerdWallet — E&O Insurance Cost Guide: https://www.nerdwallet.com/article/small-business/errors-and-omissions-insurance-cost
If you need a policy review checklist tailored to your city (e.g., New York City vs. Austin), request a focused checklist and sample endorsement language for negotiation.