In today’s litigious society, Errors and Omissions Liability insurance is absolutely crucial for every business. Whether you are self-employed or own a large multi-million dollar company, it is important to have the proper policies in place to protect your reputation and finances in the event of unforeseen problems or lawsuits.
What is Errors & Omissions Liability Insurance?
Errors & Omissions insurance covers you, or your company, for any mistakes you (or one of your employees) may make while performing the agreed upon services. If a client or customer perceives that someone in your company has committed an error, omission, or negligent act resulting in a loss of finances or reputation, you could be held responsible for the damages incurred. E&O insurance will protect your assets, pay any settlements or judgements, and cover legal expenses, even if the claim is found to be groundless.
Why is E&O Insurance Necessary?
The liability coverage in a general insurance policy typically deals with property damage or personal injury but does not apply to problems resulting from professional error, negligence, poor advice, or faulty performance. If you provide a service to clients or customers then you are vulnerable to lawsuits and should have E&O insurance as part of your portfolio.
For example, if a transportation company experiences an unexpected mechanical breakdown enroute and fails to make an important delivery on time, the customer may be unable to meet expected deadlines and, therefore, suffer financial losses. In addition, the client may also complain that they experienced damage to their reputation and the possibility of losing future contracts due to the transportation company’s failure to perform the service within the agreed upon terms. In the case of a lawsuit, the transportation company could be held responsible for any damages, which may add up to a significant settlement. For smaller businesses, one complaint could cause unrecoverable financial strain, and possibly even lead to bankruptcy.
By neglecting to include E&O protection in your policy, you are putting yourself and your company at financial risk since you could be forced to pay for losses that are not covered by your general liability insurance.
Who Should Have E&O Insurance?
Any individual or business that works on a service for fee basis will have additional exposures that could increase the risk of litigation. In other words, if your job requires you to complete work that could be (or be perceived as being) faulty or inadequate, then you should have errors and omissions liability insurance.
Everyone makes mistakes, and it is unrealistic to think that no one will ever have complaints about the work or service you provide. Unfortunately, some problems or errors can be quite costly and may even result in a great financial strain on a company. That’s were E&O insurance can help. Whether the issue is real or perceived, this coverage will protect a company’s assets and honor any financial obligations not covered by a general liability policy.
Professions that should consider E&O insurance include: health care professionals, lawyers, accountants, architects, engineers, real estate agents, contractors, consultants, software developers, transportation companies, financial advisors or investment brokers, and marketing companies.
In some locations, specific professions are required by law to carry E&O insurance, particularly those in the health care field.
Advantages of Errors and Omissions Liability Insurance
- Protects a company’s reputation: In a competitive business environment, customer service is often the key to success. If a company is unable to cover the damages caused by errors, omissions, negligence, or faulty performance, its reputation could be ruined and future work may be hard to obtain.
- Protects a company’s assets and finances: Lawsuits can be expensive, and often a company will be responsible for defence costs, even in a favorable judgement. E&O insurance will cover any judgements, settlements, and legal expenses so a company’s bottom line isn’t affected and it will be able to continue operating as usual.
- Protects clients/customers: Often clients will request that E&O insurance be in place so they know that the funds will be available to cover any losses caused by professional errors, omissions, negligence, or faulty performance. Even if it is not required, it can be a great selling point since it will assure customers that they will be protected should any problems arise.
- Customized to a company’s needs: There are no “standard” E&O policies. Since every company will have different exposure, the policy can be worded to cover specific needs. Individuals or businesses can be assured that the E&O insurance in their coverage addresses the issues that they may experience, and they will have the peace of mind knowing that they are protected in every situation.
What Is The Cost of Errors and Omissions Liability Insurance?
The cost of E&O insurance can vary significantly depending on location, type of business, and claim history. In addition, some insurance companies may charge more than others for the same coverage.
Where To Get Errors and Omissions Liability Insurance
Since E&O insurance is so crucial to a company’s financial success and must be written very specifically for each individual or business, it is recommended that you find an insurance professional that has a good understanding of this type of coverage and is experienced in designing E&O policies.
Errors and Omissions liability insurance can help you and your business in the case of professional error. Even if an alleged mistake is proven to be groundless, defence costs can still be quite high. Since lawsuits are becoming more and more prevalent, it is very important to protect yourself from the high litigation costs and potential settlements often associated with customer claims.