Which statement about professional liability limits is true?

• A. They provide unlimited liability protection.
• B. They cap potential damages and allocate risk between client and firm; ensure the insurance coverage is adequate.
• C. They are optional in all contracts.
• D. They replace the need for ethical conduct.

Answer: (B)

Professional liability limits define how much the insurer will pay for claims, capping damages and guiding how risk is shared between client and firm while ensuring the coverage matches the potential exposure. This cap gives both sides a predictable financial boundary and helps the firm plan, since defense costs and settlements are bounded. The limit should be set high enough to cover likely damages and defense fees, so the insurance truly guards against major claims. In contrast, unlimited liability would expose the firm to unbounded costs, and saying these limits are optional in all contracts ignores the common practice of requiring minimum coverage. Also, insurance limits do not replace ethical conduct—doing business with integrity remains essential regardless of the insurance in place.