E&O insurance, short for errors and omissions, is a form of professional liability insurance that protects businesses and their workers against claims of negligent actions or inadequate work. Most policies cover both defense costs and settlements up to a specified amount outlined in the insurance contract. Errors and omissions insurance are generally recommended for any professional or business that gives advice or provides services. Business professionals like physicians, architects, computer consultants, and others who consider themselves to be professionals in their field can benefit from errors and omissions insurance.
All types of situations can lead to an E&O lawsuit. For example, you could make a clerical error in an email or contract, causing delays in your work or miscommunications with clients. You could also face a lawsuit due to failure to disclose. For example, if you fail to provide adequate instructions to a client on how to use certain equipment and that equipment results in injuries to that person, you could be held liable.
Types of E&O Insurance Policies
Ultimately, your business could be sued by anyone who feels like they have suffered a loss due to your advice or services. The good news is you can protect your business from financial ruin by having the proper protections in place. There are a variety of E&O coverage options available to businesses. E&O coverage options include:
- Negligence – With negligence coverage, businesses can protect against alleged or actual errors and omissions when providing others with professional services. This could include failing to deliver a service, giving incorrect advice, or similar actions that result in damages or injury to another person.
- Defense Costs – Errors and omissions insurance can provide businesses with legal defense financial coverage when a covered claim is reported.
- Copyright Infringement – Your policy will also provide coverage for claims expenses or other damages resulting from copyright infringement.
Common Features of E&O Policies
Errors and omissions insurance can greatly range from one policy to the next. It is important to understand the various features found on standard E&O insurance policies and whether each could be beneficial to your business. An errors and omissions policy can be customized to meet the unique needs of your business. The most common features of E&O insurance policies include the following:
The majority of errors and omissions insurance policies are what are known as claims-made. This essentially means that they cover claims that are made against the insured party during the term of the policy. Note that some insurance policies limit coverage to claims that were made and reported during the policy period. You may also notice that some errors and omissions policies include retroactive dates. If your policy contains such a date, your policy will limit coverage to claims that result from acts committed on or after the specified date. If a claim contains an act that was committed on or after the specified date, it will not be covered.
2. Insuring Agreement
Another feature found in errors and omissions insurance policies is known as the insuring agreement. This is a summary of your coverage in broad terms. It essentially explains what the insurer promises to do in exchange for you paying a premium. Most insuring agreements are basically the same and say that the insurer will pay on behalf of the insured loss if the insured becomes legally obligated to pay for a claim due to a wrongful act. The term wrongful act refers to any negligent act that you may have allegedly committed while performing work tasks or if you fail to perform professional services.
One of the most important elements found within an errors and omissions insurance policy is the defense coverage section. Your insurance policy should explain that the insurance company will provide you with defense against all covered claims. Note that the expense of defending legal claims may be covered either inside or outside of the insurance policy’s limit. It is important to realize that defense costs can be quite significant. Therefore, you will want to choose an insurance policy that covers these costs, as well as the limit.
When reviewing your errors and omissions insurance policy, you will likely notice some limitations to your benefits. The most common exclusions found in E&O policies include the following:
- Punitive damages
- Wrongful acts that you were aware of before the inception date of the policy
- Fraudulent, dishonest, or criminal acts that were committed by any insured person
- Wrongful acts or claims that were reported under a prior policy
- Liability that is assumed under a contract
- Property damage or bodily injury
- Disputes regarding fees
- Failure to maintain your insurance
- Profits that you have acquired illegally
- Discrimination based on sex, race, creed, color, etc.
5. Limits and Retention
Other important features to review on your errors and omissions is limits and retention. Most E&O policies contain individual limit and aggregate limits. An individual limit refers to the highest amount that the insurer will pay for settlements or damages from a single wrongful act or claim. The individual limit could apply to each claim. If your defense expenses are also subject to limits, individual and aggregate limits are also included in the defense costs. Some E&O policies also include a retention, which is an amount that you must pay for each claim out-of-pocket. The retention may apply only to damages or to both damages and claims expenses.
Speak to Business Insurance Brokers
No matter what industry you are in, you may face certain legal claims whether or not they are actually legitimate. This is why it is important to be prepared for whatever legal claims you may face. Errors and omissions insurance is an effective way to reduce the consequences that can follow a serious lawsuit and help prevent a major financial hardship from building defense costs and settlements. For more information about who needs errors and omissions insurance or to inquire about a policy for your own business, contact the experienced business insurance brokers at BBG Broker today.