What is the purpose of professional liability limits?

• A. To cap potential damages and allocate risk between the client and the firm; ensure the insurance coverage is adequate.
• B. To eliminate all risk.
• C. To shift liability to employees.
• D. To remove ethics requirements.

Answer: (A)

Professional liability limits set the maximum amount a firm might have to pay for a claim, which helps cap damages and manage risk. This cap, along with how the risk is shared with clients and the level of insurance chosen, keeps financial exposure predictable and ensures the insurance coverage matches the level of risk the firm faces. In practice, limits help firms determine appropriate coverage and maintain financial stability if a claim arises. They do not eliminate risk entirely, nor do they shift liability to employees or remove ethics requirements, which are separate considerations.