Errors and omissions (E&O) insurance is a form of liability insurance that protects your business from claims of mistakes or failures in service delivery. This type of insurance safeguards your business against client claims of negligence, malpractice, errors, or omissions purportedly made during professional services. It assists in covering legal fees and any damages or settlements that may be due.
Grasping the benefits of this insurance can help you see why it should be a component of your risk management strategy.
What Is Covered by an E&O Insurance Policy?
Errors and omissions insurance, often referred to as professional liability insurance, assists with legal expenses if a client alleges you made a costly error. If a customer accuses you of delivering inaccurate work, missing deadlines, or failing to deliver, your E&O insurance can cover your legal fees and any settlements.
Incorporating this insurance coverage is crucial for a well-rounded insurance plan.
E&O insurance is one essential product among many that businesses need to mitigate risks. Companies should regularly evaluate their insurance needs and policies to ensure they are adequately covered. During policy renewals, it’s crucial to scrutinize E&O coverage to confirm the new policy’s terms are consistent and no new exclusions exist.
E&O insurance typically does not cover:
● Sexual harassment and other employment actions
● Illegal activities
● Bodily injury or property damage
● Data breaches
● Property damage caused by the business
Businesses still require these coverages and should secure them through other means as part of their overall insurance plan.
Is E&O Insurance Necessary?
Some states mandate that businesses providing professional advice or services purchase E&O coverage. Nonetheless, it’s wise to obtain this insurance even if your state doesn’t require it. Without coverage, you’ll be responsible for claims expenses yourself. If you or your employees err at work, E&O insurance can cover your legal defense costs.
Remember, errors and omissions policies include a retroactive date, marking when your coverage begins. Additionally, there’s an extended reporting period, which covers claims made shortly after your policy ends. Typically, this ranges from 30 to 60 days.
Who Should Have Errors & Omissions Insurance?
E&O Insurance is essential for businesses offering paid services to clients. When delivering these services, an employee might make an error or overlook a task, hence the term, “errors and omissions.”
Businesses that typically need E&O coverage are:
● Tax preparers
● Technology professionals
● Insurance brokers
● Real estate agents
● Architects and other design professionals
● Accountants
A company can anticipate that its E&O policy will be customized to its specific business sector. Insurers analyze the unique risks associated with a given business line and craft E&O policies suited to those risks. An insurer might propose a policy with a coverage limit that varies based on the specific industry and business line.
Selecting the Right E&O Policy
Risks Included in Coverage
Selecting the appropriate E&O policy hinges on your business type and the risks you wish to cover. Numerous E&O policies cater to particular professions, like lawyers, accountants, or real estate agents. Ensure the policy you select aligns with your business operations.
Certain E&O policies extend to other common business risks. For instance, employment practices liability insurance protects against claims stemming from workplace issues like discrimination and wrongful termination.
Coverage Limits and Expenses
As with any insurance, your E&O policy balances cost and coverage. Policies with greater coverage generally come with a higher price. When evaluating policies, examine both the per occurrence limit and the aggregate limit. The per occurrence limit is the maximum the policy will pay per lawsuit/claim, while the aggregate limit is the total maximum the policy will pay overall. For instance, an E&O policy might provide $250,000 per incident and up to $1 million in total.
When comparing insurance costs, ensure you’re looking at the same total coverage. Also, review the policy’s deductible. This is the amount you need to pay out of pocket before insurance coverage begins. Policies with higher deductibles generally have lower premiums.
Most E&O policies are claims-made, meaning they cover claims made during the policy term. A claims-made policy won’t cover claims filed after the policy has expired.
Certain insurers provide E&O insurance through occurrence policies, covering claims from incidents happening during the policy term, regardless of when the claim is made. Due to their broader coverage, occurrence policies are typically more costly than claims-made policies.
Conclusion:
Errors and omissions insurance, also known as E&O or professional liability insurance, shields your business from claims due to negligence, bad advice, errors, or omissions. E&O insurance handles damages, settlements, and legal expenses stemming from covered claims. If you or your employees offer professional advice or services to clients for a fee, you probably need E&O insurance. Ideally, a company would never have to file a claim under its E&O policy. However, it’s wiser for business owners to be cautious and secure ample E&O coverage to safeguard their business.
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