Understanding Errors and Omissions Insurance Coverage

What is Errors and Omissions Coverage?

Errors and omissions insurance protects your business from lawsuits that claim you or your employees made a mistake, error, or omission in your professional services. This coverage can apply if your client holds you responsible for a service you provided or failed to provide or if the service did not have the expected or promised results.

Errors and omissions coverage is also known as malpractice insurance for health care professionals such as doctors, dentists, and chiropractors and professional liability insurance for professionals such as lawyers, accountants, architects, and engineers.

Even with the best workforce and solid risk management practices, mistakes can still happen.

Because E&O risks vary significantly among companies and different industries, E&O policies usually differ by client to fit their unique needs. It is important to thoroughly review your policy with your agent to ensure the coverage fits your exposures.

Why Do I Need E&O Coverage?

A customer could sue your business for a number of reasons, including:

• An error or omission in services you’ve provided
• Negligence
• Inaccurate or false advice
• Misrepresentation
• Violation of good faith and fair dealing

Errors and omissions policies usually cover the cost of damages incurred by your client (indemnity) as well as claim expenses. Even if the charges against you are found groundless, it can be very time consuming and cost thousands of dollars to defend a lawsuit in court. These costs can bankrupt an individual or small company and leave a lasting effect on the bottom line of larger companies. An E&O policy can cover judgments, settlements, and defense costs should a claim arise.

If you do not have errors and omissions insurance, you will be left paying for these costs out of pocket.

How Do I Know if I Need E&O Coverage?

Many types of professionals need this coverage, including:

• Accountants
• Advertising agencies
• Appraisers
• Architects
• Chiropractors
• Commercial printers
• Construction contractors
• Dentists
• Engineers
• Home inspection services
• Insurance agents and brokers
• Internet service providers
• Lawyers
• Medical professionals
• Mortgage brokers
• Property management companies
• Public relations firms
• Staffing agencies
•  . . . and more!

It is best if you consult with your insurance agent to determine if you have an E&O risk.

Here is a general rule of thumb: do you provide a service to your clients for a fee? If so, you have E&O exposure.

Other questions you can ask to determine if you have E&O risk include:

• Do you possess special knowledge and skills necessary to perform your duties?
• Do you hold industry-specific licenses and/or certifications?
• Do you participate in continuing education to earn and maintain licenses and/or certifications?

If you answered yes to any of the above questions, you have E&O exposure.

What Do E&O Policies Cover?

Errors and omissions insurance provides coverage for you and your business if a claim arises alleging failure to provide professional services in accordance with applicable laws and regulations. This coverage applies if your client claims you failed to deliver a service that met the standard of care for your profession.

Losses involving automobile liability, general liability, fidelity, and workers compensation are not covered by an E&O policy. Coverage for bodily injury or property damage is not typically included unless the injury or damage result from providing or failing to provide professional services (this is common on policies for medical professionals).

An E&O policy provides protection for you (the professional), your partners and employees, and the corporation/partnership. Directors and officers of the company are not covered by an E&O policy.

Some other exclusions to be aware of include:

• criminal, fraudulent, deliberately wrongful, or malicious acts
• guarantees or warrantees
• claims stemming from previously known but undisclosed errors

Even with the best workforce and solid risk management practices, mistakes can happen. Not having an E&O policy can put a serious financial risk on you and your business. Set an appointment with me to learn more about this coverage and if it's right for your business.