Have you ever made a mistake? Of course, you have. Even the most meticulous person messes up from time to time. It’s only human – but when clients are counting on you to provide expert advice and deliver quality services, human error can result in major losses. If clients suffer financial losses because of your mistake, they may decide to recoup their losses through a lawsuit. This is why errors and omissions insurance exists. Here’s a look at what this insurance product covers and who needs it.
What Is Errors & Omissions Insurance?
The name tells us a lot about what this insurance product covers. Errors and omissions insurance, or E&O insurance, provides coverage against claims of professional negligence, i.e., the errors and omissions that you might make in the course of providing professional services. It is also called professional liability insurance.
If you have a covered claim, your E&O policy will cover your legal expenses up to the policy limit and according to the terms of the policy.
What Does Errors & Omissions Insurance Cover?
E&O insurance provides coverage for many types of claims involving financial loss. For example, you may be able to file a claim under your E&O policy in the following situations:
- You miss a deadline or a fail to deliver a service you have been contracted for.
- When giving professional advice, you fail to mention something important, or you provide inaccurate advice.
- You deliver a service, but this service fails to meet industry standards.
What Doesn’t Errors & Omissions Insurance Cover?
E&O insurance provides important coverage, but it does not cover everything. This is why E&O insurance is an important part of an insurance package that includes other coverage types, such as general liability insurance, property insurance and auto insurance. E&O insurance provides coverage for financial loss experienced by your client. Although medical professional liability insurance can provide coverage for injuries that result from medical services, E&O insurance typically excludes bodily injury. For example, if a client trips on your property and is injured, your E&O policy will not provide coverage. Likewise, E&O insurance does not provide coverage for damage to your property, such as fires, storm damage or theft.
Also, E&O insurance provides protection against claims involving losses experienced by clients. It does not cover employee issues. For example, E&O insurance does not cover employee injuries, and it does not cover claims of wrongful termination or other employment practices issues. Although E&O insurance provides coverage for claims involving client losses, some claims may be excluded. For example, E&O insurance typically covers acts of negligence, but intentional acts may be excluded. Criminal acts may also be excluded from coverage.
Coverage for claims will also depend on when the loss and claim occurred. Many E&O policies provide claims-made coverage. This means that coverage is available for claims that occur while the policy is active. In contrast, occurrence-based policies provide coverage based on when the loss occurred. Because there can be a significant gap between the loss and the claim, this distinction can be important.
Who Needs Errors & Omissions Insurance?
E&O coverage is important for a wide range of professionals. In some cases, coverage may be legally or contractually required. In other cases, it may simply be an important part of risk management.
Some states require E&O insurance for certain professionals. For example, doctors, nurses, physical therapists and other health care providers may be required to purchase medical professional liability insurance, or medical malpractice insurance. Lawyers may likewise be required to purchase legal malpractice insurance.
Even if your state does not require you to carry E&O insurance, the contracts you sign may require coverage. For example, your employer, partner or professional association may require E&O coverage. Clients may also require proof of coverage before agreeing to do business with you. To see if you may need E&O coverage, as yourself the following questions:
- Do state or local laws require E&O insurance coverage?
- Does your employer, partner or association require E&O insurance coverage?
- Do your clients require E&O insurance coverage?
- Do you provide professional advice to clients?
- Do you provide professional services to clients?
- Are you contractually obligated to meet deadlines and provide certain services?
- Could mistakes or oversights on your part result in financial loss for your clients?
If you answered yes to any of these questions, or if you aren’t sure, an insurance broker can help you determine whether E&O coverage is right for you.
What Industries Need E&O Insurance?
E&O coverage is suitable for a wide range of industries – too many to list. To see if you need coverage, review the questions above and talk to an insurance agent. However, to give you an idea of the professions that can benefit from E&O coverage, here are some examples:
- Doctors and Other Medical Professionals
- Computer Programmers
- IT Consultants
- Insurance Professionals
- Financial Advisors
- Real Estate Professionals
- Consultants and Advisors in Various Industries
What If a Claim Is Unfounded?
It can be hard when you’re called out for a mistake that you made, but it can feel even worse when you’re accused of something you didn’t do. Imagine the following scenarios:
- You advise a client to take a particular course of action in order to avoid financial loss. Your client ignores your advice and then, as you warned, experiences a financial loss. Then the client blames you for failing to make the risk clear, even though you know you said everything you could.
- You send your client an important document that needs to be signed immediately. Your client loses it, and the deadline is missed. Then the client accuses you of not having sent the document on time.
- You deliver a service, and as an expert in your field, you are confident that it is excellent work. Your client, however, disagrees. He expected something else. Unlike you, he’s not an expert in the industry, and maybe his expectations are unreasonable. This doesn’t stop him from suing you.
Meticulous documentation can help you beat unfounded claims, but your legal defense will still require time and money. This is another reason why professionals should consider purchasing errors and omissions insurance coverage.
Want to learn more? Contact your Higginbotham insurance advisor for more information about errors and omissions insurance tailored for your industry.