Errors and Omissions Coverage

Regardless of how well-versed or professional you and your staff may be, mistakes can still happen. That’s where E&O insurance comes in. It provides protection against claims alleging you made a mistake or failed to do something you should have done while performing your professional duties.E&O insurance can help cover the cost of defending against a lawsuit and any awarded damages, up to your policy’s limits. It is a type of liability insurance protecting companies and their employees against claims of errors, omissions, or negligent actions.

What Does Errors and Omissions Coverage Cover?

It’s important to know that E&O insurance doesn’t cover everything. Depending on the policy, it may exclude certain types of claims or damages.

An E&O policy typically covers the following:

• Missed deadlines
• Negligence or malpractice
• Undelivered services
• Oversights and mistakes
• Breach of contract

Let’s use an example to explain all these provisions in an E&O policy.

Negligence or Malpractice

Negligence means that you failed to do something you should have done, or you did something you shouldn’t have done, resulting in harm to the client. Say you’re an accountant and make a mistake on client’s taxes. If the client sues you for professional negligence, your E&O policy will help cover the cost of your legal defense and the settlement money.

Mistakes and Oversights

Oversight is a mistake resulting from inattention. Even smaller mistakes can land you in legal trouble with clients. Let’s say you’re an event planner and forget to book the venue for your client’s event. The client sues you for breach of contract, and your E&O policy will help pay for the resulting legal fees.

Missed Deadlines

Missed deadlines are often the result of negligence, but they can also be caused by simple human error. If you miss a deadline and your client suffers damages, your E&O policy will kick in.

Breach of Contract

A work contract contains everything from the scope of work to the money you’ll get for your services. If you fail to adhere to the contract terms, you could be sued for breach of contract. For example, if you’re a web designer and fail to deliver the website you promised to your client, they could sue you for breach of contract. If they win, your E&O policy will help cover the damages. Since you did not deliver the website by the deadline, this case could also fall under missed deadline or undelivered services.

What Does Errors and Omissions Insurance Not Cover?

As mentioned, your E&O insurance policy will not cover every potential issue that could arise in your business. Here are some of the most common types of claims that the policy does not cover.

• Employee injuries
• Customer injuries
• Property damage
• Employee discrimination claims/lawsuits
• Contingent bodily injury
• Business vehicles

If an employee sustains an injury on the job, your E&O policy will not cover their medical bills or any other related expenses. The same goes for a customer injury on your property. If they sue you, your E&O policy will not cover the costs associated with the lawsuit. Instead, you need general liability insurance or workers’ compensation insurance policy to cover these types of claims. E&O insurance also excludes property damage. So, if your business causes damage to someone else’s property, your E&O policy will not cover the cost of repairs. Another type of claim that E&O insurance does not cover is employee discrimination. If an employee accuses you of discriminating against them, the right insurance policy for you will be Employment Practices Liability Insurance (EPLI). Lastly, E&O insurance does not cover contingent bodily injury. A contingent injury is an injury that is not caused by your business but is a result of your business activities. For example, if you are a real estate agent and a buyer is injured on the property you are showing them, your E&O policy will not cover the cost of their medical bills. You must purchase a separate insurance policy if you need coverage for any of the above mentioned exposures. General liability insurance and business owner’s policy are two of the most common policies that cover these types of risks.

Do You Need Errors and Omissions Insurance?

Whether you should get errors and omissions insurance depends on a few factors. The first is whether clients can hold your business liable for damages due to negligence or errors. If you’re providing a professional service, it’s always a good idea to have this type of insurance. Another factor to consider is the type of business you have. You’ll likely need this insurance if you’re in a high-risk industry, such as law or medicine. The following professionals should consider getting E&O insurance:

• Financial planners
• Insurance brokers
• Lawyers
• Real estate agents
• Doctors
• Accountants
• Consultants
• Wedding planners
• Chiropractors

Let’s explain the importance of such a policy in the law context. As a lawyer, you could face lawsuits for negligence if you failed to provide your client with the best possible outcome. While you may have acted in good faith, your actions (or lack thereof) could still be deemed negligent. If your client wins the lawsuit, they could be awarded damages. E&O insurance would help to cover those damages. Similarly, if you failed to prepare a certain document or made an error in a contract, your client could sue you. Again, E&O insurance would help you in this regard too.

How Much Does E&O Insurance Cost?

The cost of your policy will depend on several factors, including the size and scope of your business, the products and services you offer, and the amount of coverage you need. Factors like these will determine your premium. However, you can expect to pay anywhere from a few hundred to a few thousand dollars annually for E&O insurance. It’s important to work with an experienced insurance agent to ensure you get the right coverage for your business at the best possible price.

Conclusion

Summing up, E&O insurance is a must-have for individuals and businesses that provide professional services. It can protect you from potential risks arising from your work and give you the peace of mind to do what you do best.