Errors and Omissions insurance, also known as E&O or professional liability insurance, is an option offered to anyone who provides professional services. Should a client suffer harm due to an error on your part or because you failed to perform a service, you and your company are protected.

Medical providers, lawyers, architects, social service providers, realtor/property managers, and any other professional service provider could benefit from this coverage. In fact, in some cases, it’s required prior to doing your job.

Wondering if you require E&O insurance coverage? Read on for more information about this specialized form of liability insurance.

Mistakes Are Common

Even the most competent employees are capable of making errors. And sometimes, even  with stringent risk management practices in place, a mistake can occur that would put your company at risk of a costly— potentially crippling— lawsuit.

Doctors most often come to mind when E&O insurance is discussed, but they’re just one of the many professions that can benefit from professional liability coverage. Say, for instance, an architect makes a mistake in a blueprint, and it’s not caught until the building is under construction. This could be a very expensive fix without E&O coverage.

As another example, say a financial advisor is hired to manage a portfolio. After the client follows the advisor’s directives, they experience a significant financial loss. The client faults the financial advisor’s counsel as the reason for their losses, and sues to recoup the balance.

As long as the service provider’s negligence was unintentional, the business would be covered by E&O insurance in the event of litigation, whether the claim was founded or not.

When is E&O Insurance Called Into Action?

Broadly speaking, Errors and Omissions liability insurance covers unintentional acts of negligence. These acts include the following:

  • Violation of Good Faith If a client experiences a failure of communication or feels that information was withheld, they could accuse your company of an act of noncooperation.
  • Misrepresentation— You or a representative of your company promises a client that a product, service, or feature will be present; if it’s not as expected, the client could sue your company for misrepresentation.
  • Offering Incorrect Counsel— A client is offered advice, and takes it. However, this advice results in profit loss for the client, so they decide to take legal action against you.

What will E&O Insurance Pay For?

Errors and Omissions insurance offers companies and individuals financial protection should the worst occur. Should a client choose to sue, some of the things the policy will cover include:

  • Legal Fees— These include the attorney’s costs, witness fees, court expenses, and all costs that are related to the proceedings.
  • Settlements— Should the court determine that the client is due compensation, the policy will cover it.
  • Lost Income— Court proceedings take time, and often result in time away from the business, which means that there’s no income coming in. An E&O policy will supplement your income during this time.

What’s NOT Covered by E&O Insurance?

Of course, the list of exclusions on your policy should be carefully examined, as they vary from policy to policy. Here’s a general overview of exclusions that are commonly found in E&O policies:

  • Intentionally setting out to defraud or commit a criminal act against a client by the insured party.
  • Should the wrongful acts in question occur prior to the policy’s inception date, they’re not covered by the liability insurance. .
  • If you or another covered party attempt to defend profit that was made through illegal measures.
  • Punitive damages, which occur when client chooses to seek compensation for any injury that was caused by an act of negligence. They’re also known as exemplary damages.

If you’re interested in getting more information about an errors and omissions policy, we’d love to help. Click here to get a quote today.

*Reprinted with permission from https://www.linksinsurance.com/blog/why-do-i-need-errors-and-omissions-insurance-coverage, article by JoAnne Tubito

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