What is professional liability insurance

Professional liability insurance protects a specialist or a company against claims from clients and third parties who suffered harm because of an error, omission or negligence in providing professional services. If the injured party demands compensation, the insurer pays — within the sum insured and on the terms of the contract.

It should not be confused with general liability insurance. A general liability policy responds to harm caused by your activity as a whole: water leaking from a rented office into the neighbours' premises, a visitor slipping in a shop. Professional liability cover concerns the quality of the work itself: a wrong calculation, a mistake in a document, an incorrect valuation, a missed procedural deadline, a wrong diagnosis.

Legal framework in Russia

The general rules on liability insurance are set out in Chapter 48 of the Civil Code of the Russian Federation. Article 931 governs insurance of liability for causing harm, Article 932 governs insurance of contractual liability. An important detail: under Article 932, insurance of liability for breach of contract is allowed only where the law provides for it. That is why many policies are structured as insurance of liability for harm caused to third parties, and the wording of the risk in the insurer's rules should be read carefully.

Where insurance is mandatory by law

For a number of professions, a liability insurance contract is a condition for being allowed to practise. These include:

  • notaries — under the Fundamentals of Russian Legislation on Notaries;
  • valuers — under the Federal Law on Valuation Activities in the Russian Federation;
  • insolvency practitioners (arbitration managers) — under the Federal Law on Insolvency (Bankruptcy);
  • cadastral engineers — under the Federal Law on Cadastral Activities.

Minimum sums insured and contract requirements for these professions are set by the relevant laws and by the rules of self-regulatory organisations (SROs) — check them before signing a contract.

Where cover is voluntary

Liability is insured voluntarily by doctors and private clinics, lawyers, auditors, accountants and outsourcing firms, designers and architects, engineering consultants, IT developers and integrators, real estate agents, marketing and advertising agencies. Often a large customer or tender documentation requires the policy.

What the policy covers

  • Compensation for harm and losses that the policyholder must pay to a client or third party under a court decision or by agreement with the insurer.
  • Defence costs — lawyers, expert reports, legal fees, if included in the contract.
  • Loss mitigation costs — reasonable expenses incurred to reduce the damage (Article 962 of the Civil Code).

Typical exclusions

  • intentional acts of the policyholder or its employees;
  • work without the required licence, permit or SRO membership;
  • activities not specified in the contract;
  • claims the policyholder knew about before the contract was concluded;
  • fines, penalties and liquidated damages — unless the contract expressly covers them;
  • claims from affiliated persons and the policyholder's own employees.

An important detail: which claims are covered

A professional's mistake may surface months or years after the work was done. Contracts therefore use two approaches:

  • losses occurring — errors made during the policy period are covered even if the claim arrives later;
  • claims made — claims brought during the policy period are covered. A retroactive period (errors made before the contract started) and an extended reporting period after it ends are usually added.

If you switch insurers, make sure there is no gap in the retroactive period between the old and the new contract.

What drives the price

  • type of activity and the typical size of potential client losses;
  • turnover, number of specialists, number of projects;
  • experience and claims history;
  • sum insured, limit per claim, deductible;
  • length of the retroactive period and territory of cover.

The exact price is set after underwriting, so it is worth comparing offers from several insurance companies.

How to take out a policy

  1. Fill in the application form: activity, turnover, claims history, required limits.
  2. Prepare documents: licences, certificates, details of SRO membership.
  3. Obtain and compare insurers' offers — on cover, exclusions, deductible and retroactive period, not only on price.
  4. Sign the contract and pay the premium.

Practical tips

  • Check the definition of the insured event in the rules against the real risks of your work.
  • Choose the sum insured with your largest contracts in mind, not the minimum allowed.
  • Document the work you deliver — this helps both in a dispute with a client and in claims handling.
  • Notify the insurer of a claim immediately and do not admit liability without its agreement.

More on the terms — on the professional liability insurance page. Company executives may also need directors' and officers' liability insurance (D&O). To receive offers from several insurers, send a request to Polis Re specialists.