What exactly is E&O Coverage?
Whether you’ve heard it called Errors and Omissions insurance or Professional Liability insurance, let’s take a closer look at what it is (and why you need it).
We all learned from a young age that no one is perfect. But, while we’re usually quick to overlook our own mistakes, you’ve probably discovered that your clients aren’t as forgiving when you mess up.
Everyone is sure to have an “off day” from time to time, but businesses that perform a service or give advice can’t afford to make a mistake. Especially when those mistakes can lead to a loss for a client or colleague.
Luckily, the insurance industry recognizes a need to cover instances of errors, omissions, and negligence, which means there’s a product available to protect your business.
There are many names for it but whether you call it Professional Liability, Malpractice Insurance, or Errors and Omissions insurance, this is one business insurance policy you shouldn’t neglect.
What is Professional Liability Insurance?
In past decades, there was a difference between Professional Liability and Errors and Omissions insurance. Today, however, the terms are pretty much synonymous.
Professional Liability insurance provides coverage for things like:
- Bodily injury or property damage due to the provision of a skilled professional service, and
- Negligent professional advice that leads to a loss.
This doesn’t mean that your clients and customers can’t file a lawsuit against you, but it does mean that your E&O insurance policy would pay for your legal costs (including any settlements or judgments) in the unfortunate event that you do get sued.
For example, if your financial advice led to a client losing 75% of their portfolio and they sued you, the attorney fees and ensuring settlement wouldn’t have to bankrupt you.
It is worth noting that E&O insurance will NOT cover instances of intentional misconduct, dishonesty, or fraud.
General Liability vs Professional Liability
Many business owners are under the impression that their General Liability policy covers any and all liability claims. But that General Liability policy isn’t as extensive as you might think.
Let’s look at two hypothetical liability insurance claims to untangle the difference between these two essential coverages.
Marta is a successful accountant who (prior to COVID) had a stream of clients in her downtown office to sort out their finances. During one appointment, her client Greg trips on a chair and breaks his wrist. He decides to sue, but Marta’s General Liability insurance policy is available to cover Greg’s medical expenses as well as Marta’s legal costs.
The following month (Marta has terrible luck!), she is so distraught over the court case that she forgets to file Debbie’s taxes with the IRS. Debbie is hit with some hefty late fees and files a lawsuit against Marta to cover them. This is where Professional Liability insurance would come into play.
Do I Really Need Errors and Omissions Coverage?
You might be an expert in your field…after all, that’s why you opened a business. But your expertise is simply not enough to keep you completely free of all allegations and lawsuits.
As we mentioned earlier, no one is perfect. And there’s a good chance that either you or one of your employees will slip up at some point during the upcoming years.
So before you dismiss E&O insurance as something that just “isn’t for you,” it’s worth reminding yourself about the costs involved. Which brings us to our next point….
How Much Does Errors and Omissions Insurance Cost?
Because every business is unique, no two E&O insurance policies are alike…and the same goes for their insurance premiums.
The amount you pay for Errors and Omissions insurance depends on several factors, such as the size, nature, and location of your business. Other factors, like claims history and coverage limits will affect the amount you pay.
One way you can keep your Error and Omission insurance cost down is by providing your employees with thorough training to reduce mistakes (and therefore risk).
Professional Liability premiums are usually based on the number of employees you have. The average cost is $500-1,000 per employee, but this is just an estimate. Other factors may raise or lower this cost.
More important than cost, however, is the value of the policy you’re purchasing. Before you decide that E&O insurance “isn’t worth it,” take a few moments to think about whether you have enough money set aside to cover the legal costs of defending yourself in court in the event you are sued.
Remember, accusations of negligence, errors, or misconduct do not have to be based in fact to cost you an arm and a leg. And even if you win your case (or it’s dismissed), you will still have to pay your attorney for their time.
Who Should Have Errors and Omissions Insurance?
Any business that provides a service or advice should make sure that their insurance coverage includes a Professional Liability policy commensurate with their level of risk.
Professionals that are especially vulnerable to this type of risk include:
- Insurance agents
- Financial advisors
- IT professionals
- Construction companies
- Printing and publishing companies
- Travel agents (if you can find one!)
When you think about it, there are very few businesses that would not benefit from Errors and Omission insurance. If you are unsure about your insurance needs, contact a local independent insurance agent for advice.
Everyone makes mistakes now and again, but with the right Errors and Omissions insurance policy, your mistakes don’t have to bankrupt you.
Make sure your business is protected against a multitude of liability claims, not just bodily injury and property damage.
At Harry Levine Insurance, we specialize in matching business owners with the commercial insurance policies that fit their needs. The world can be a scary place, but your biggest mistake would be not having the right insurance coverage. Call today to get a free quote and see which policies may be right for you.