Errors and Omission Insurance
It’s not about your professionalism, training, or years of experience. It’s about human nature. Mistakes happen to the best of us, no matter how experienced.
Yes, you can be sued even if you didn’t do anything wrong.
The simplest clerical error or proofreading mistake (even made by a trainee) can cost you, if it results in financial loss or damage to the reputation of one of your customers. That’s why it’s important to understand the extent of your business liability insurance—it only protects your operation against bodily injury, property damage, or advertising injury.
But what happens when you, one of your employees, or a vendor fails to catch something that your customer doesn’t miss, and they hold you responsible? They can not only refuse to pay, but they may also sue you for damages. But with an errors and omissions (E&O) insurance policy, you’ll enjoy specialized liability protection against losses not covered by traditional business insurance.
What Is Errors and Omissions Insurance?
Errors and omissions insurance or E&O is a kind of professional liability insurance that safeguards companies, your employees, and other professionals against claims of poor work or negligence.
Errors and omissions insurance, at most times, covers both court expenses and any settlements up to the amount dictated by the insurance contract. This kind of liability insurance is mostly required for professional advice-giving or service-providing kinds of businesses.
- Errors and omissions insurance is a kind of professional liability insurance.
- E&O insurance shields companies, organizations, and professionals against claims of poor work and carelessness made by the clients.
- Any company that provides a service immediately requires E&O insurance including those who are in financial services, insurance agents, doctors, lawyers, and also wedding planners.
Understanding Errors and Omissions Insurance
Errors and omissions insurance is a kind of liability insurance. It safeguards companies against the full expenses of a claim made by a certain client against a professional who offers advice or services such as a consultant, financial adviser, insurance agent, or lawyer.
To give you a scenario, a client may sue a certain adviser or broker after an investment did not go well. This could happen even though the risks were well-known and within the guidelines set by the client. One thing that could also happen is even if a court or arbitration panel still finds in favor of a broker or investment adviser, the legal fees can be very high which this kind of insurance is very essential for you.
The advantages of E&O insurance differ greatly depending on your insurance policy and your insurer. E&O insurance may or may not cover temporary employees, claims resulting from work done before the policy was placed, or even claims in various jurisdictions. These insurance policies do not cover criminal prosecution and certain liabilities that may take effect in a civil court not listed in your policy.
Also, the cost of an insurance policy depends on different factors including the kind of business covered, your location, and any previous claims that have already been paid out in the past.
Who needs E&O insurance?
If you’re in the business of providing services to clients for a fee—doctors, lawyers, accountants, architects, engineers, wedding planners, printers, building-trades contractors, mortgage and real estate services, designers, advertising agencies—if your service is possible to be done incorrectly or late, and it costs your client money or harms their reputation, you need to investigate E&O.
Furthermore, insurance brokers, insurance dealers, registered investment advisers, financial planners, and other financial professionals can get E&O insurance. Also, regulatory bodies such as the Financial Industry Regulatory Authority or company investors also often require to obtain E&O insurance.
E&O insurance can be also applied to businesses outside the financial industry including non-profit organizations, general maintenance companies, and contractors and engineering firms. In addition, any other kind of company or professional who provides a service such as wedding planners and printers also need this kind of insurance. Medical professionals such as doctors and dentists also get E&O insurance called malpractice insurance.
Furthermore, a certain person or company with several cases has a higher underwriting risk and is likely to find E&O insurance more expensive or less favorable in its terms as a result.
What does E&O cover?
Errors and omissions protects you from claims in the event a customer or client sues your service business for negligent acts, errors or omissions occurring during business activities, and which potentially result in a financial loss for the client.
Errors and omissions insurance policies usually cover the business owner, both salaried and hourly employees, and subcontractors working on behalf of the business.
Errors and omissions insurance can be customized to meet your specific needs, no matter what your business or industry. Real estate agents face different risks than printing companies, but both have the potential to impact their customer’s lives and livelihoods if a mistake occurs.
Benefits of a specialized E&O policy may also include:
- Monthly payment options to help spread out your payments so you can better manage your cash flow
- Coverage of temporary staff, full-time employees, and independent contractors
- Past work covering unforeseen claims arising from work completed before you were even insured, to a pre-agreed date
- Worldwide coverage as long as the claim is filed in the U.S., one of its territories or Canada
- Claims responsiveness when time is of the essence, especially in the event of an insurance claim
- Tailored coverage for the specific risks of your field and industry
- Knowledgeable agents who provide exceptional, passionate service
- Coverage for contracts satisfying most standard contract insurance requirements
- Fast and simple online quotes, or helpful agents, immediate coverage
Example of Errors and Omissions Insurance
If you decided to not obtain E&O insurance, your company can be held responsible for up to millions in damages plus the legal fees that can arise from your lawsuits. E&O insurance can help you eliminate these potential liabilities.
For example, a company that hosts servers used by third parties for data purchases was breached by hackers who gained access to your sensitive and private client data. The companies affected by this data breach can sue the server-hosting company for damages for inadequate security.
The server-hosting company has an E&O insurance policy and checks what does their policy cover and does not cover. With the advantage of the said policy, this covers such situations. Your insurance company will then pay for the legal expenses involved in the court case against multiple companies. It will also pay for any monetary damages demanded by the courts or any settlements.
Obtaining errors and omissions coverage can help your company avoid a huge loss and even avoid bankruptcy depending on your company’s finances. So, please consider taking E&O insurance if you are in the business of providing professional advice or other professional services.
Why We’re Different
You may think you want the cheapest insurance you can find, but realize you may not be getting everything you bargained for…
While most insurance products are similar in price and function, insurance providers are very different when it comes to structuring a policy that actually covers you.
There’s no such thing as a one-size-fits-all insurance policy when it comes to your business.
We’re your neighbors. We protect businesses and people we know and care about, and that means we always look for ways to protect you better, including carefully choosing the insurance companies we represent to be both affordable and responsive.
Contact us and let the professionals at our company help you forge the strongest shield possible to help you protect the things you are working hard to build.
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Explore and learn more about some unique risks as well as the related insurance solutions
Possible Liability: Alleged neglect to do work correctly or not doing it at all and resulting in a lawsuit.
Solution: Protection for your service business for negligent acts, errors, or omissions occurring during business activities, and which potentially result in a financial loss for the client.
Possible Liability: An employee or a 3rd-party vendor hired to complete work but was supposedly careless.
Solution: The business owner, both salaried and hourly employees, and subcontractors working on behalf of the business are usually included in the policy coverage.
Possible Liability: A dental professional or a real estate agent requires specific clauses or endorsements to be added.
Solution: Tailor-fit to meet your specific needs, no matter what your business or industry. For example, real estate agents face different risks than printing companies, but both have the potential to impact their customers’ lives and livelihoods if a mistake occurs.
Possible Liability: Work done by a former employee was supposedly erroneous and resulted in a claim.
Solution: Coverage of temporary staff, full-time employees, and independent contractors
Past work covering unforeseen claims arising from work completed before you were even insured, to a pre-agreed date.
DISCLAIMER: Consult actual policy for exact terms and conditions or talk to your insurance agent for clarifications.
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