Errors and omissions (E&O) insurance is a type of professional liability insurance that shields businesses, their employees, and other professionals from charges of poor work or careless behaviour.
It’s not unusual for people who provide services to deal with claims made by their clients. To protect themselves from these kinds of lawsuits, they need professional liability insurance (PLI). Misrepresentation, malpractice, and error are all covered by PLI. One type of PLI is errors and omissions (E&O) insurance, which covers careless or poor work claims.
E&O insurance is needed by all businesses and people who offer professional services or advice. Doctors, lawyers, financial planners, insurance agents, engineering companies, and other professionals are all examples. Up to the amount set out in the insurance deal, E&O insurance can pay for claim settlements. It generally also covers the court fees, which can be very high.
What Does Error and Omission Insurance Cover?
Many E&O claims are straightforward, like not delivering a product or service as stated. On the other hand, charges of professional negligence can be harder to handle.
If a client pays you to do something specific, they should expect a reasonable level of care. The client can sue you for professional carelessness if you do poor work. In particular, mistakes and omissions insurance covers the following:
Errors and oversights at work
A client could lose money because of even a small mistake or oversight on the part of a professional. Errors and omissions insurance helps pay attorney’s fees and other legal costs when a client sues your business to get their money back.
Services Not Delivered
If your company leaves work unfinished, your client’s business plans could be thrown off. A client could sue you if you don’t do what you said you would do, especially if it hurts the client’s bottom line.
Claims Of Carelessness
There is a chance that a client will sue your business for carelessness if you don’t meet professional standards while working with them. A client unhappy with your work could still sue you for negligence, even if nothing is wrong.
Missing Due Dates
If your company misses a date, it could cause your clients’ business plans to be pushed back, costing them money. Accidents and mistakes insurance can pay for the court costs if a client sues your company for being late with work.
What Does Error and Omission Insurance Not Cover?
The types of claims that E&O insurance does not cover are injuries to customers or employees, possible bodily harm, claims of discrimination against employees, and damage to the company or customer property. Other types of business insurance cover allegations like these.
Most types of liability insurance cover harm to customers and property damage. Workers’ compensation insurance pays for accidents to workers. Product liability insurance covers accidents that could happen.
Employment practices liability insurance (EPLI) will pay the costs if an employee sues the company for discrimination. Also, E&O insurance doesn’t cover crime charges or mistakes made on purpose to hurt someone.
Many E&O insurance plans don’t cover claims made by temporary workers, people who make claims in different states, or claims about work done before the insurance started. When a business signs an E&O insurance deal, it needs to know what the policy covers and how it works.
How Does E&O Insurance Work?
Errors and omissions insurance covers the legal fees when someone says you didn’t do your job right or didn’t meet standards.
You can call your insurance company to make a mistake and omission claim. Once you do that, they’ll ask for basic details, like what happened and your policy number.
Many errors and omissions in insurance plans are based on claims being made. This means that your mistakes and omissions policy has to be in effect for you to get insurance benefits:
- When a mistake is said to have happened and
- When the claim is sent in
If you have claims-made errors and omissions insurance, you can also choose a date in the past that covers work you did. If you don’t want to pay for cases out of your pocket, you need coverage that always lasts.
Who Needs Errors and Omissions Insurance?
Often, for errors and omissions, insurance covers settlements and court costs up to the amount set by the insurance deal. This risk insurance type is usually needed for businesses that give professional advice or services.
If a business doesn’t have E&O insurance, it can be sued and pay up to millions of dollars in penalties, plus the costs of hiring a lawyer.
E&O insurance can be bought by insurance brokers, insurance dealers, real estate agents, registered investment managers, financial planners, and other financial experts. Regulatory bodies, like insurance officials, the Financial Industry Regulatory Authority (FINRA), or even investors in a company will often need E&O insurance.
E&O insurance can also be used by businesses not in the financial sector, like engineering firms, general repair companies, and nonprofits. Another type of business or person who offers a service, like wedding planners and printers, also needs E&O insurance. Doctors, dentists, and other medical workers also get malpractice insurance, a type of E&O insurance.
A client could sue an advisor or broker if an investment goes wrong, even if the risks were understood and aligned with the client’s agreement. Legal fees can be very high, even if a court or arbitration panel rules in favour of a broker or financial advisor. This is why E&O insurance is essential.
Cost of Errors and Omissions Insurance
The insurance price is based on several things, such as the type of business it covers, its location, and any claims already paid. A person or company that has been sued is seen as having a higher financial risk, which means that their E&O insurance may cost more or have worse terms.
E&O insurance can cost between $500 and $1,000 annually for each employee.
Conclusion
If a business makes a mistake while running, it can get E&O insurance to protect itself. A hurt person can file a claim against a company if they legally miss a deadline, leave out something important, make a professional mistake, or act negligently as a professional. In these cases, the business might have insurance covering the costs of legal fees and property damage.
