WASHINGTON—Federal employees face very real liabilities in performing their duties, as recent investigations of Central Intelligence Agency employees attest.

Although high-profile investigations have generated the most public interest, more mundane issues also expose federal employees to liability. In some cases, the government itself must step in and defend them; in others, it may be the government itself that is investigating the employee.

That's where professional liability insurance specifically for federal employees can kick in.

Federal employees face three major categories of liability that can be covered by insurance, said Debra Roth, a partner in the Washington law firm Shaw, Bransford, Veilleux & Roth P.C. Bethesda, Md.-based Federal Employee Defense Services Inc. refers covered claims to the firm to provide legal defense services to its members.

“The big one is getting sued personally for performing your government function,” Ms. Roth said.

While such cases have increased since the Sept. 11, 2001, terror attacks, they remain rare, she said. Such suits occur when a claimant alleges that the federal employee violated his or her constitutional rights.

In most cases, the Department of Justice provides the employee with a defense and the government would pay for damages. But Ms. Roth said some federal employees buy liability insurance on their own in case the Justice Department declines to provide a representation. Ms. Roth said doing so is a “very inexpensive” way of covering any gap.

The type of employee who is personally vulnerable deals with the public, such as law enforcement officers, said Anthony Vergnetti, president of FEDS. “They can be held personally liable, but they still have qualified immunity,” he said.

Insurance also would protect employees if they are being criminally investigated for acts and omissions in their federal duties, said Ms. Roth. She said a simplified example would be a federal agent accused of lying to a grand jury, which could lead to a Department of Justice investigation. Federal employees can buy insurance to provide legal defense coverage because “the Department of Justice is not going to defend you if they are prosecuting you,” she said.

A third area for which federal white-collar managers buy insurance is to protect themselves during internal administrative disciplinary proceedings, said Ms. Roth. Such an investigation might include allegations of favoritism, she said.

“It's unlikely to go 20 years and not have a subordinate or group of subordinates make an allegation against you,” she said.

Aiding in defense

The “primary benefit” of insurance is in defending criminal and administrative investigations, said Peter Noone, a partner in the Belmont, Mass., law firm of Avery Dooley Post & Avery. The group represents policyholders in the federal employee insurance program of Annandale, Va.-based Mass Benefit Consultants Inc.

Mr. Noone said insurance is valuable in cases where an agency has employees that must have security clearance to do their jobs. If an agency attempts to take a security clearance away, the result can be “lethal” to the employee's career, he said.

In addition, Washington-based Wright USA also provides liability insurance for federal employees. Although the firm declined to be interviewed for this story, the company's Web site says it offers a federal employee professional liability policy for “less than $1 a day per policy year.”

Membership in the FEDS program entitles federal employees accused of misconduct or wrongdoing in the course of rendering a professional service or scope of employment to legal fees up to $200,000 in an administrative investigation, disciplinary action or judicial sanction proceeding; $100,000 for criminal legal defense; up to $1 million for liability damages in a civil suit; and a 36-month extended reporting period after leaving federal service for $270 a year. Atlanta-based American Safety Indemnity Co. underwrites the program.

Employees pay for the coverage out of their own pocket, but certain groups of managers, supervisors and law enforcement personnel are entitled reimbursement for up to half of their cost, Mr. Vergnetti said.

“It's like any supplemental insurance, almost on par with an umbrella,” he said. “I certainly am very passionate that every employee needs it. Only about 10% of the employees who are eligible for the reimbursement actually have it.”

“It's not in their culture” to buy such insurance, Mr. Vergnetti said. “They just don't appreciate that it can happen to them.”

Mass Benefits offers its own program with similar limits for $266 a year, according to its Web site. The program is underwritten by Markel Group's Evanston Insurance Co.

State employees also face liability for their actions, said Laura Peterson, president-elect of the Alexandria, Va.-based Public Risk Management Assn. and risk manager for the state of Nebraska in Lincoln.

“Nebraska has a statutory provision that provides for indemnification of its state officials if they are sued personally for something they have done in the scope of their employment,” Ms. Peterson said. The most common actions affect law enforcement or correctional personnel, she said.

“We're completely self-insured for indemnifying” officials, she said. In addition, most states are self-insured unless they buy specific liability coverage for a particular group of workers, such as medical malpractice liability for state health employees, she said, adding that Nebraska also self-insures that risk.

“Of all the claims I worry about, indemnification is not a high concern as far as quantity of claims or severity of claims,” Ms. Peterson said.