What is the Difference Between Commercial General Liability and Professional Liability (E&O)?

Learn about Commercial General Liability & Professional Liability Insurance

There is often some confusion between a Professional Liability (E&O) and a Commercial General Liability (CGL) Insurance policy. While looking to insure their business, owners, like you, often have questions like, "What type of Insurance Do I Need? What is Professional Liability Insurance? What is Commercial General Liability? Do I need one or both?" These are all great questions and will help provide the information to make your own decision. We'll explain the difference between Professional Liability and Commercial General Liability and which kind you might need for your business.

What is Commercial General Liability (CGL) Insurance? What is Professional Liability (E&O) Insurance?

Commercial General Liability: Provides coverage for bodily injury or property damage caused to third parties because of the product or services you provide.

Professional Liability: Sometimes called Errors & Omissions (E&O) Insurance, provides coverage for financial harm caused to a third party because of the products or services you provide or fail to provide.

What is the difference between CGL and E&O Insurance?

At a high level, the difference is the initial cause of the injuries to the third party. Was it from bodily injury or property damage? Or was it purely an economic loss (i.e. financial harm)? If the initial cause of harm was property damage or bodily injury, that is still a Commercial General Liability claim even if financial harm was caused.

For example, a fire accidentally starts and partially burns down a client’s restaurant. Your Commercial General Liability will pay for the damage you caused by fire and any financial harm caused by the restaurant being closed for the repairs. Though you caused financial harm, it was a result of property damage, not purely economic.

On the other hand, let’s say you are responsible for advertising for a restaurant's “2 Can Dine” special and you advertise this special within a 5 KM radius around the restaurant. Unknown to the restaurant owner, there is a typo in the advertisement you created; the ad says "$9.99" when the actual price is $39.99. The potential reputational harm of not honouring this promo outweighs the $30 lost on every coupon redeemed. After running the promo for 45 days, the restaurant has 500 people redeem the coupon resulting in a $15,000 loss. This is purely economic and results from your failure in providing adequate service and could result in a Professional Liability claim.

So what insurance do I need? CGL? E&O? Or Both?

The first part is determining if you have a Professional Liability exposure - meaning, can the services you provide cause a purely economic loss? If yes, then you need E&O Insurance. If the answer is no, then you likely do not need E&O Insurance. We recommend Professional Liability Insurance (E&O) to all businesses we feel could trigger the coverage so if you're not sure, just ask!

We always recommend Commercial General Liability Insurance; E&O is the optional piece depending on your business. The important thing to remember is most liability policies have a duty to defend any actual or alleged claims. Duty to Defends means that they will hire a lawyer on your behalf and fight the lawsuit regardless of the truth to the allegation, assuming the applicable insurance policy would pay in the event the courts deem you responsible.

We know finding the right insurance can be a confusing process between all the insurance lingo and the small nuances in coverage. That's why our team of experts at Foxquilt is happy to answer any questions you might have about insuring your business. We know every business is unique so we can help you find a customized insurance policy tailored to your business needs and help you get peace of mind. Get your quote today.