Reference
Professional Liability Glossary for Design Professionals
Written and reviewed by Michael LaBarbera, licensed insurance agent
This glossary defines the 25 professional liability terms design firms most often see in policies and contracts, in plain English. Start with claims-made, retroactive date, and tail — they decide whether a claim is covered at all.
DESIGN PROFESSIONAL LIABILITYG-001INSURANCE / REFERENCE SHEET
- Claims-made
- A policy form that responds to claims first made and reported while the policy is in force, provided the work happened after the retroactive date. Most professional liability for design firms is written this way.
- Occurrence
- A policy form that responds to injury or damage that happens during the policy period, no matter when the claim is made. Typical for general liability, rare for professional liability.
- Retroactive date
- The earliest date of professional services a claims-made policy will cover. Work performed before it is excluded, so keeping your original retro date when you switch carriers matters.
- Prior acts
- Coverage for services performed before the current policy began, back to the retroactive date. "Full prior acts" means no retroactive date restriction.
- Tail / extended reporting period
- An extension that lets you report claims after a claims-made policy ends, for work done while it was in force. Commonly purchased on retirement, closing a firm, or a merger.
- Nose coverage
- Prior-acts coverage bought from a new carrier so it accepts your existing retroactive date, filling the gap a tail would otherwise cover.
- Defense inside limits
- Defense costs reduce the policy limit available to pay settlements or judgments. Also called eroding or burning limits.
- Defense outside limits
- Defense costs are paid in addition to the policy limit, so the full limit remains available for settlements or judgments.
- Deductible vs SIR
- With a deductible the carrier handles the claim and you reimburse your share; with a self-insured retention (SIR) you pay costs up to the retention before the carrier responds.
- Aggregate limit
- The most a policy will pay for all claims combined during the policy period, for example a $2M aggregate.
- Per-claim limit
- The most a policy will pay for any single claim, for example $1M per claim.
- Project-specific policy
- Professional liability dedicated to a single project, usually covering the whole design team, with limits that are not shared with the firm's other work.
- Practice policy
- A firm's annual professional liability policy covering all of its projects, with limits shared across them.
- Contractual liability
- Liability you assume by contract beyond what the law would impose. Professional liability policies typically exclude it unless you would have been liable anyway.
- Indemnity clause
- A contract provision requiring one party to cover another's losses. Broad or "defend" obligations may not be insurable for design professionals.
- Additional insured
- A party added to your policy so it receives coverage. Common on general liability; generally not available on professional liability.
- Waiver of subrogation
- An agreement that your insurer will not pursue recovery from another party after paying a claim. Often required by contract for general liability and workers' comp.
- Certificate of insurance
- A document summarizing your coverage, limits, and policy dates, provided to clients, owners, or contractors as evidence of insurance.
- Vicarious liability
- Liability for the acts of others, such as subconsultants you hire. Many design policies cover it when the subconsultant's work is part of your services.
- Consent-to-settle / hammer clause
- A provision that limits the carrier's liability if you refuse a settlement it recommends; softer versions share costs above the proposed settlement.
- Pollution exclusion
- A common exclusion for claims involving pollutants. Some design-professional policies add back limited pollution coverage for professional services.
- Design-build
- A delivery method where one entity holds both design and construction responsibility under a single contract, which changes how professional liability applies.
- Standard of care
- The level of skill and care a reasonably prudent professional would use in similar circumstances. Professional liability responds to alleged breaches of it.
- Betterment
- The added value an owner receives when an error is corrected, such as an item that should have been in the original design. Policies typically do not pay for betterment.
- First-party vs third-party
- First-party coverage pays your own losses (such as cyber breach costs); third-party coverage pays claims others bring against you (such as professional liability).
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