As we all know, accidents can happen in business because we’re only human and mistakes can be made. Specialized services, like consulting, teaching or giving professional advice to clients, automatically hold you to a higher level of duty and accountability. Errors & Omissions insurance, also known as Professional Liability insurance, “E&O insurance” and Professional Indemnity insurance, helps protect you and your business from lawsuits claiming you made a mistake in your professional services. Let’s take a look at the types of occupations that should have it, what it covers, and why E&O insurance is necessary.

What is E&O insurance?

By definition, Error & Omissions insurance (E&O) is “a type of liability insurance that protects companies, their workers, and other professionals against claims of inadequate work or negligent actions made by clients.” Anyone who provides a service requires E&O insurance. It protects companies, owners, and employees against legal liability for claims of financial loss, bodily injury, and/or property damage arising from mistakes or negligence on the part of those who offer professional services and advice. These mistakes can include giving the wrong advice, service error, or incorrect data/information given to clients. This type of policy also protects against claims of libel or slander (also referred to as personal injury claims) that arise as a result of you performing your professional duties.

Examples of professional negligence

What would be considered an act of negligence? The IBC outlines examples of negligent acts:

  1. Financial loss. Your corporation provides financial advice, and advice from one of your employees who is trained as a professional financial advisor leads to an individual losing their life savings. This said person then seeks compensation from your organization.
  2. Bodily injury. As part of your non-profit organization’s teen suicide hotline service, an employee who is a trained psychologist speaks to a teen caller. Subsequently, the teen commits suicide and the victim’s family sues your organization and alleges professional negligence.

Who is a professional?

While there is no singular definition of who is considered a professional, you can feel free to ask your isure broker how your insurer defines who a professional is to determine if you should have Professional Liability insurance.

Here are some examples of professions that often require E&O insurance:

  • Accountants
  • Actuaries
  • Architects
  • Attorneys
  • Bookkeepers
  • Designers
  • Doctors
  • Engineers
  • Event planners
  • Financial planners
  • Insurance brokers
  • Lawyers
  • Medical staff
  • Paralegals
  • Project managers
  • Recruiters
  • Software developers
  • Wedding planners

Corporate employees or volunteers who act as professionals in their duties for your organization should consider securing Professional Liability coverage to ensure that their interests are covered.

What does a typical E&O insurance policy cover?

The details of your policy are commonly specific to your industry and the products and services you offer. An E&O policy generally covers:

  • Work mistakes and oversights
  • Accusations of negligence
  • Undelivered services
  • Missed deadlines

How much will E&O insurance cost?

The amount you need to pay will be influenced by a variety of factors:

  • Type of industry
  • Location of your business
  • Legal standing
  • Training of employees
  • Annual revenue
  • The size of your company
  • History of litigation

Many small business owners will pay approximately between $500 and $2,000 every year for their insurance. This is only an average price, so you could pay more or less depending on your industry and personal operations. It is best to consult your isure broker to determine which type of coverage is best for your business.

What is not covered by E&O insurance? 

Some actions will not be covered in E&O insurance policies, including:

  • Coverages are offered under a crime insurance policy. Ex. criminal, dishonest, or fraudulent acts.
  • Violation of acts. Ex. Truth in Securities Act.
  • Inaccurate cost guarantees or price estimates you provided.
  • Incorrect estimates of profits or economic returns that you promised.

How can I prevent an E&O insurance claim?

The best way to shield yourself from litigation is to have good commerce practices, such as:

  • Communicating and checking in with your clients regularly
  • Setting time aside to go through documentation sent to clients
  • Always building in some extra time to help meet timelines
  • Business plans: They can be more than just profit projections! Have a strategy to manage and store documents, project planning, and customer service

Is Errors and Omissions the same as Malpractice Insurance?

Errors and omissions insurance is no different than professional malpractice insurance. For doctors, dentists, and other medical practitioners, this is called Malpractice insurance.

Do I need E&O insurance if I work from home?

Yes. As long as you provide a service to a client, you can be sued for errors and omissions arising out of negligence, regardless of your location. Protect yourself with insurance, as legal costs and settlement fees can cripple your small business.

How often do you need to pay for E&O insurance?

Like other insurance policies, you generally need to renew your E&O insurance annually. This is to ensure that you have an opportunity to update your insurer on any changes that you have made to your business or your policies.

What is the difference between General Liability Insurance and E&O Insurance?

Commercial General Liability Insurance covers third-party property damage or bodily injury, whereas Errors and Omissions insurance covers lawsuits alleging neglect, misconduct, or failure to deliver advice or services, as promised. Together, they form a comprehensive insurance policy package.

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Though the costs of being in business are expensive, when considering E&O insurance, the cheapest option may not always be in your best interests. If you only consider price points for your coverage, you could find yourself inadequately covered in the event of a claim. Your policy should balance your coverage requirements and your budget because lawsuits are expensive and even if the claims are unfounded, you’ll still need to pay for representation. Errors and omissions insurance can help protect you and your business and give you peace of mind – speak with one of our isure representatives today to get the proper coverage or request a quote!

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