In brief. Professional indemnity insurance —known in the market as E&O (errors and omissions)— covers the financial loss your company causes a client through an error, an omission or negligence in the course of its technical or intellectual activity. It does not indemnify physical damage arising from your operations —that is the domain of general liability— but the financial loss that poorly executed work causes a third party: a wrong calculation, a defective report, a failed implementation. It is almost always arranged on a claims-made basis, which makes the retroactive date decisive. Its scope, sub-limits and exclusions are governed by each policy.
What does professional indemnity (E&O) insurance cover for an engineering or consulting firm?
Every technical services firm ultimately sells professional judgement: a design, an opinion, a systems architecture, a strategic recommendation. When that judgement fails and the client suffers a financial loss, the claim is not directed at a material defect but at the work itself. This is the terrain of professional indemnity.
E&O cover responds, in general terms and subject to the terms of each policy, for the financial loss caused to a third party by:
- Errors in the calculation, design, report or execution of the assignment.
- Omissions: failing to warn of a risk, to include a relevant piece of data, or to meet a technical requirement.
- Professional negligence or a lack of the required diligence.
- Defective advice that leads the client to a harmful decision.
To this core is usually added legal defence —lawyers, experts and costs to respond to the claim, even when it proves unfounded— and, in some programmes, cover for material or personal damage arising from the professional error, depending on what each policy provides. It should not be taken for granted: not all E&O cover includes such damage, and its treatment varies from one company to another.
Does your company provide engineering, consulting or technology services? Request a review of your programme and we will assess which E&O scope fits your activity.
How does it differ from general or public liability?
This is the distinction that clarifies most cases, because covering one does not cover the other. General or public liability responds for third-party damage —personal or material— arising from the company's activity: a visitor injured at your offices, equipment your technician damages at the client's premises. The triggering event is physical damage caused by the operations.
Professional indemnity (E&O) responds for the pure financial loss produced by intellectual or technical work, without material damage necessarily being involved. The triggering event is an error in the delivery of the service.
An example makes it clear. If an engineering firm starts a fire with a blowtorch on site, that is general liability. If that same firm miscalculates a structure and the client incurs cost overruns or delays to correct the project, that is professional indemnity. Both lines are complementary, and a well-built programme coordinates them so that no gaps or overlaps remain between them.
This logic —the triggering event and who it reaches— is the same one that distinguishes other liability lines, such as product liability, where the damage is caused by the manufactured good once placed on the market. Each line covers a different exposure; confusing them leaves exposed precisely what was believed to be insured.
YMYL note. Holding general liability cover does not mean being protected against a professional error. They are different lines. Let us discuss your situation and review what your portfolio covers today.
Risks by sector: engineering, architecture, consulting, IT
E&O exposure changes with the nature of the service. These are the corporate profiles with the greatest concentration of risk:
- Engineering: calculation or design errors, incorrect sizing of installations, defective specifications in a project. A failure at the project stage can propagate through the whole execution and multiply the overrun. In building work, moreover, the site manager and the project designer are subject to the specific regime of the LOE.
- Architecture and urban planning: project defects, breach of technical or planning regulations, erroneous measurements that alter budgets and timelines.
- Strategic and financial consulting: defective advice, reports with erroneous conclusions, valuations or due diligence that lead the client to a decision with financial impact. Here the loss is almost always purely financial.
- IT, software and technology (E&O): failure in a system implementation, configuration error, loss of client data, breach of the agreed service levels (SLA) or delivery that does not meet the contractual specifications. This is an expanding field with a blurred boundary against cyber risk, which should be delimited by policy.
In all these cases, the size of the claim rarely bears any proportion to the amount of the assignment: a modest fee can trigger a claim for a far greater loss. That is why the sum insured and the sub-limits must be sized according to the client's real exposure, not the size of the invoice.
Do you know the amount of cover your company holds today against a professional claim? Request an analysis of your cover with no obligation.
Claims-made and retroactivity: why they are key
This is the technical concept that decides whether or not a claim is covered, and it is worth understanding well. Most professional indemnity policies are issued on a claims-made basis (by claim made), not on an occurrence basis.
Under a claims-made policy, claims made during the policy period are covered, provided the event giving rise to them occurred after the retroactive date set in the contract. In other words, what matters is when the claim is made, not only when the error was committed.
Two critical elements follow from this:
- Retroactive date. It marks how far back cover reaches. An error committed before that date falls outside cover, even if the claim arrives while the policy is in force. In technical services, where a project defect may surface years after delivery, an insufficient retroactive date leaves a dangerous gap.
- Discovery period (or extended reporting period). When changing policies or brokers, or when ceasing activity, continuity should be secured: that claims for earlier events remain covered. Without a retroactive date that is maintained or an adequate discovery period, the insured can be left uncovered precisely for work already carried out.
The practical consequence is direct: a professional indemnity policy is not compared on premium alone. A poorly managed change of company —losing the accumulated retroactivity— can prove far more costly than any difference in price. Preserving that continuity on renewal or when changing intermediary is part of the broker's work.
YMYL note. Retroactivity and the discovery period are governed by each policy and are not automatic. Before changing company, let us review together how to maintain the continuity of your cover.
The role of an independent broker
Sizing professional indemnity cover for an engineering, consulting or IT firm is not a matter of buying an off-the-shelf product. It requires understanding the activity, mapping the exposure, setting a coherent sum insured, negotiating exclusions and —above all— monitoring the continuity of the retroactive date over the years.
As an independent broker, we work under the client's mandate and with access to the whole market —including London and Lloyd's—, which makes it possible to compare the risk appetite of several companies for the same technical profile and to tailor cover, sub-limits and clauses to your real exposure. And, when a claim arises, to defend your position in the loss.
You will find where professional indemnity fits within the full range of corporate lines in our cover areas for large accounts, coordinated with the rest of your insurance programme.
Frequently asked questions
How does professional indemnity differ from general liability? General liability covers third-party damage (personal or material) arising from the activity; professional indemnity covers pure financial loss caused by errors or omissions in professional practice. They are complementary.
What is a claims-made policy? It is the usual claims basis in professional indemnity: it covers claims made during the policy period for events occurring after the retroactive date. Continuity should be safeguarded when changing policies.
Does a consulting or IT firm need E&O? Yes; advice and technical implementation can trigger claims for errors, loss of client data or failure to meet contractual expectations. The scope is governed by each policy.
Does professional indemnity cover an engineer's design errors? It may cover the financial loss arising from a professional error or omission, subject to the terms and exclusions of the policy; damage on site may also require other cover (decennial, contractors' all risks).
Sources and regulations
- Royal Decree of 24 July 1889 (Spanish Civil Code), articles 1101 (liability for breach of contract) and 1902 (non-contractual liability for fault or negligence).
- Spanish Building Regulation Act (LOE, Law 38/1999 of 5 November) — liability regime of the project designer and site manager in building work.
- Insurance Contract Act (Law 50/1980 of 8 October) — framework for liability insurance.
- Market practice — professional indemnity policies issued on a claims-made basis, with a retroactive date and a discovery period.
- Directorate-General for Insurance and Pension Funds (DGSFP) — supervision of insurers and intermediaries.
New Brokers is an independent insurance broker registered with the DGSFP under code J0140. This content is for guidance only and does not constitute binding advice; cover, guarantees and terms are governed by each policy and company. We work under the client's mandate, with access to the whole market —including Lloyd's— and defence in the event of a claim.
Is your engineering, consulting or technology company well covered against a professional claim? Request an analysis of your professional indemnity programme. We compare the market for you.