The most common misconception in professional liability is the belief that a well-run business has nothing to worry about, according to Valerie Cusano (pictured), vice-president of commercial for Alberta at Westland Insurance.
"I don't need to worry about that because I do a thorough job in my business," Cusano said, describing the mindset she hears most often. It usually runs further than that, she said: excellent safeguards, a focus on risk management and loss prevention, a business that is top in class – and, from there, the conclusion that there are no real exposures to insure against.
The flaw in that thinking, she said, is that the clients who sue hold a subjective belief about what they should have received, and when they don't get it, they are free to bring a claim. Even an unfounded one is expensive to defend.
The cost begins the moment a matter is filed, Cusano said. The professional alerts their insurer, the insurer typically engages legal counsel, and expert witnesses may be needed to establish who actually did something wrong – because in E&O, that question rarely answers itself. A single matter can pull in two or three experts and a range of lawyers, she said, with defence costs alone reaching significant sums before the question of fault is ever settled.
What makes E&O distinct from a property or liability claim, she said, is that nothing visible anchors it. There is no burned-down building to point to. The claim is subjective, and an unhappy client alone can create one – a matter that may be resolved easily, or may take years of investigation and legal cost to defend. Running a tight ship, understanding the business well and protecting it through internal risk management does not remove that exposure.
The damage does not stop at defence costs, Cusano said. The right policy can respond to that broader fallout: it can include forms of reputational coverage, she said, as well as cover for the clients a professional loses when a claim becomes public. That second piece matters more than it once did because of how exposed professionals now are online.
In the internet era, she said, a single claim surfacing in a Google search can be deeply damaging to any professional trying to attract new clients – making it important to understand just how severe a claim can be, well beyond the immediate legal bill.
That severity is feeding into how the market prices professional liability, Cusano said. Underwriters are increasing scrutiny and rethinking how they rate risk, moving away from charging every firm in a profession the same standard rate and toward understanding who is genuinely best in class and what each applicant's actual exposures are.
Rates may climb for certain industries and within them, she said, depending on how advanced a firm's risk management is. Underwriters now want to know whether a firm has clear policies in place for its staff, how it is managing the exposures that exist today, whether it understands how its AI risks have evolved, and how it is dealing with fraud and cyber protection. Cyber in particular is a rapidly growing area of exposure, she said, with breach alerts from hotels, travel agencies and airlines now a near-daily occurrence. The practical effect is more questions at application, and more supplementary questionnaires on top of the original E&O submission.
The counterweight to that exposure, Cusano said, is a broker who treats coverage as an ongoing exercise rather than a renewal transaction. The best practice is to sit down with the client, work through a proper checklist, and understand not just what the business does today but how it has changed and where it is heading in one, two or five years. The broker, she said, should behave almost as though embedded in the client's business.
It is partly an exercise in role play, she said – drawing out the exposures a client already worries about, then introducing the ones they have not considered, based on claims the brokerage has seen elsewhere in the same industry. For a professional convinced their operation is airtight, that conversation is often where the real, unconsidered exposures first surface.
For professionals confident in their own operations, Cusano's underlying caution is that the confidence itself is the risk. A claim does not require a mistake – only a client who believes they were owed something they did not get.
"Even an unfounded claim is extremely expensive to defend," she said.
