Employer's exposure to loss: under California Civil Code §2338, a principal is responsible to third persons for the negligence of its agent in transacting the business of the agency. So when a junior architect makes a negligent design error while doing the firm's work, the client can sue the firm, even though no partner was personally at fault. That vicarious liability is why firms insure the entity and not just individual professionals.

Common perils insured: negligent acts, errors or omissions in rendering, or failing to render, professional services to clients. Office contents belong under commercial property, and staff injuries under workers' compensation.

Who is an insured: a firm's policy typically insures the named firm and its partners and employees while they act on the firm's behalf. Coverage for an individual generally stops at work done for the firm. The client is the party who may bring the claim, not an insured. Exact wording varies by carrier.

What losses are excluded: dishonest, fraudulent and criminal acts are standard exclusions, and contractual guarantees beyond ordinary professional duty are commonly excluded too. California adds two statutes. Under Insurance Code §533, an insurer is not liable for a loss caused by the wilful act of the insured. Under §533.5(a), no policy may cover a fine, penalty or restitution in a criminal action. A client's financial loss from negligent advice, by contrast, is exactly what the policy covers.