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Errors & Ommissions Insurance

Errors & Omissions insurance, otherwise known as E&O, professional liability, or malpractice insurance, is essential protection for physicians, lawyers, architects and many other "professional" and their professional practices. E&O is also critically important for companies that are not professional practices per se, but that provide professional services to others

Why do you need errors and omissions insurance?

If you have a professional services business, having errors and omissions insurance coverage can be an integral part of protecting your business. Accusations of negligence or the failure to perform your professional services are things that any professional services business can be sued for, even if it hasn't made a mistake.

You should seriously consider errors and omissions coverage if your business:
  • provides a professional service.
  • regularly gives advice.
  • is required by its clients to have E&O insurance.

What is covered?

  • Alleged or actual negligence
  • Defense costs
  • Copyright infringement
  • Personal injury (e.g., libel or slander)
  • Worldwide errors and omissions insurance coverage
  • Temporary staff and independent contractors
  • Claims arising from services provided in the past
  • Claims and damages

What is not covered?

  • Bodily injury or property damage
  • Fraudulent acts
  • Employment matters
  • Patents and trade secrets
  • False advertising
  • Personally identifiable information
  • Other services
Most E&O policies cover judgments, settlements and defense costs. Even if the allegations are found to be groundless, thousands of dollars may be needed to defend the lawsuit. They can bankrupt a smaller company or individual and have a lasting effect on the bottom line of larger companies.

Who needs E&O insurance?

The best-known professionals who need E&O insurance are doctors, lawyers, accountants, architects, engineers, etc.

However, less thought about individuals range from advertising agencies to commercial printers, Web hosting companies to wedding planners. If you are in the business of providing a service to your client for a fee, you have an E&O exposure. You may want to consider what will happen if the service is not done correctly or on time, and it costs your client money or harms their reputation.

Here are some steps you can take to mitigate claims:
  • Always have a written contract that spells out what will be done, what will not be done and what the fees will be.
  • Communicate throughout the job and keep the expectations realistic.
  • Have quality control procedures in place and use internal and external audits to check them.

What type should I buy?

Errors and omissions insurance policies vary from company to company, and are written to reflect inherent risks and common exposures particular to different types of businesses.

Some events resulting in a loss for a client may have occurred several years in the past, and the first time the mistake is apparent is when a court summons arrives in the mail. That's when the retroactive date on the policy is very important. The farther back the retroactive date of the policy, the more coverage and protection it offers.

Even if claims are found to be unwarranted, legal fees and other related expenses can quickly eat up a company's cash reserves in no time, causing a financial hardship. Most errors and omissions insurance policies cover judgments, attorney fees, court costs and settlements up to the limits of the policy.

Are All E&O Policies The Same?

Each Errors & Omissions policy differs based on the company's needs, priorities, and risk profile. For example...

Different policies may or may not cover certain risks, such as cyber liability, intellectual property claims, or regulatory infractions.
  • The liability limits might differ.
  • You can choose higher or lower deductibles.
  • Some policies might exclude certain coverages, such as punitive damages.

Why Your Business Needs E&O Coverage

Beyond making sure that a services-based lawsuit doesn't bankrupt you, you'll want to have E&O Insurance to give your business a competitive edge. In fact, depending on your industry, E and O coverage may be required by contracts you land, clients you hope to woo, or regulatory bodies overseeing your industry.

Client Trust Means Client Satisfaction

In that very tangible way, E&O coverage can act as a financial safety net when something goes awry with your work. But there's also the fact that your policy can help distinguish your business from the competition by building credibility. E&O demonstrates to clients that you have their long-term interests at heart and that you take your work seriously.

Who is a professional?

A professional is someone who possesses special knowledge and skill necessary to render a professional service, and who is subject to the legal, ethical and/or technical requirements of a given profession. The best-known 'traditional' professionals, such as doctors, lawyers, architects, engineers, accountants and others, clearly have special knowledge and training to perform their professional services. In order to practice, these professionals are required to earn specialized degrees and comply with relevant regulations, and they are held to a certain standard of care related to their professions. There is a large and growing body of case law that shapes the acceptable standard of care for these professionals. Professionals are usually licensed and/or certified, and generally receive continuing education throughout their career.
  • Actuaries
  • Real estate agents
  • Insurance agents and brokers
  • Appraisers
  • Title agents
  • Mortgage brokers
  • Securities brokers
  • Consultants of all varieties
It is also important to note that there are many businesses that have E&O exposure that are not generally considered professional practices per se.

Examples include:
  • Advertising agencies
  • Public relations firms
  • Internet service providers
  • Claims adjustment companies
  • Market research companies
  • Property management companies
  • Mortgage bankers
  • Web hosting companies
  • Staffing agencies, including executive recruiting
  • Commercial printers
  • Testing laboratories
  • Court reporting companies
  • Home inspection services

Errors Resulting in E&O Claims

LAWYERS
  • Failure to file within statuteof limitation
  • Failure to timely file an answer
  • Poor advice
  • Failure to know the law
  • Conflict of interest
  • Failure to follow the client's instructions
ACCOUNTANTS
  • Errors in financial statements
  • Errors in audits
  • Negligent tax filings or tax preparation
  • Failure to detect embezzlement
  • Poor management advisory services
ARCHITECTS & ENGINEERS
  • Cost and time overruns
  • Negligent design or preparation of plans
  • Failure to meet code
  • Improper selection of materials
  • Catastrophic structural failure
PHYSICIANS
  • Improper diagnosis
  • Treatment or surgical error
  • Breach of confidentiality
  • Lack of informed consent
  • Excessive or inadequate testing

What Does E&O Not Cover?

The exclusions employed in E&O policies vary, based on the class for which the policy has been written. Here are a few exclusions common to many policies:
  • Criminal, fraudulent, deliberately wrongful, or malicious acts
  • Bodily injury and property damage (except certain medical and design professionals)
  • Guarantees or warrantees
  • Services as a director or officer of a company
  • Liability for workers compensation
  • Fiduciary liability under ERISA
  • Punitive damages
  • Claims stemming from previously known but undisclosed errors
  • Claims related to a claimant in which the professional has an equity interest
  • Services as a governmental official

In Summary

Errors and Omissions insurance is professional liability coverage for claims relating to either providing a professional service or failing to provide a professional service. No matter what profession you're in, an error or omission... even a simple mistake which causes financial harm to another, can put you at risk. This type of policy can help protect you or your company from bearing the full cost of defense and damages for lawsuits that may occur. This is a separate coverage from your standard general liability or property insurance.

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