No business person wants to face a lawsuit without protection, which means errors and omissions insurance is one policy every business owner should consider. This type of insurance protects businesses against large cash outlays when mistakes are made. Depending on the risk of errors, the cost of this insurance can be very reasonable or involve a sizable investment. However, the insurance will pay for itself with just one lawsuit filed against the policy holder.
What is Errors and Omissions Insurance?
This type of insurance is specialized commercial liability insurance. It covers errors made by company employees or subcontractors. Having an errors and omissions policy protects a company when it is faced with lawsuits by covering attorney fees, settlements, judgments, and court costs that are part of the covered claims. This usually covers mistakes in advice or other work to customers or clients while the policy holder is conducting business.
No one wants to have a client or customer contact them and claim they are owed money because of a mistake made by an employee or representative of the company. The legal fees and judgments can be very costly to a company that has little money to spare. And, sometimes, no mistake was made, but the customer still claims one was. It is up to the accused company to prove they did not make a costly mistake. To do this, they must hire a law firm to investigate and represent them.
E&O, or errors and omission insurance protects businesses from claims of mistakes, negligence, inaccuracies, inadequate work, misrepresentation, and similar claims. A person can make a claim, and it costs money to defend against that claim even if it is proven to be false.
This professional liability insurance covers these categories of liability claims:
- Oversights and errors in a company’s work
- Missed deadlines or a failure to deliver the promised service
- Failure to meet an accepted standard of care or professional negligence
- A breach of contract
- Misrepresentation of products or services
- A violation of fair dealing or good faith
Who Needs This Type of Insurance?
In some states, licensing boards require businesses to carry errors and omissions insurance, and they must show proof of insurance before they get their license to do business. Some of the businesses that should get E & O Insurance include:
- Real estate agents and brokers
- Accountants
- Tax preparers
- Advertising agencies
- Graphic designers
- Management and business consultants and financial planners
- Interior designers and architects
- Travel agents
- Technology professionals
- Attorneys, trustees, and paralegals
- Insurance brokers
- Certain trades
When people ask about E & O insurance, they should find out what their options are for coverage limits, cost options, and other details that will affect their company if there would be a lawsuit.
What Is Not Covered By Errors and Omissions Insurance?
This is specialized commercial insurance and it is important to know what is not covered by the policy. A company might need several different policies bundled together for complete business coverage. Some of the areas of the business that are not covered include the following.
- Employment issues include wrongful termination or types of employee harassment.
- Trade secrets and patents or stealing intellectual property
- Property damage and bodily injuries caused by the business
- Illnesses and work-related injuries related to the company
- Data breaches and personal identification information lost or stolen by a company
There are a number of specialized business insurance policies to cover different areas of liability and losses. A good insurance agent can guide the business owner to a bundled set of policies to provide the individual overage they need.