When you run a business that offers services or advice to clients, one of your greatest fears might be giving the wrong advice or your help not being very helpful (or even harmful.) We’re all human, and we all make mistakes. But what if your business makes a mistake that costs your client money? Who’s going to pay for it? Your client could hold you responsible, and what’s more, they might sue. And lawsuits are expensive. So, what’s a business owner to do to protect themselves?
Well, we’ve got some good news: there’s a type of insurance for that. It’s called errors and omissions insurance (also called E&O.) We’ll explain what E&O insurance is, who needs it, and how it works.
What is errors and omissions insurance?
As we mentioned, errors and omissions insurance typically covers a business if one of their clients alleges that the service the business provided – or a service it neglected to provide – did not turn out as the client expected and caused them financial loss. It can help you defend yourself in a lawsuit, whether you committed the error you’re accused of or not.
Even if the claim is groundless and you didn’t do anything wrong, it’s still extremely expensive to defend your business in court. That’s what E&O is for.
Fun fact: Errors and omissions insurance goes by several different names depending on the field you work in. In medicine, it’s called malpractice insurance. In law, accounting, architecture, or engineering, it may be called professional liability insurance. But E&O is a nice catch-all.
Who needs errors and omissions insurance?
If you offer services or advice to your clients and then politely ask them for money, you’ve got risk. Things happen – but what if your services cause your client financial loss? Those sorts of claims are not covered by general liability insurance since there’s no property damage or bodily injury. Which means that if there’s a financial loss for your client and they accuse your business of causing it, and they want to sue because of that loss…well, you could be on the hook.
Lots of different businesses need E&O insurance. It’s not just for lawyers, accountants, and doctors – those aren’t the only professionals out there. Financial planners, print shops, marketing agencies, web hosting companies, electricians, wedding planners, and engineers are some other people who can benefit from it, although they are by no means the only ones.
What types of claims are typically covered by E&O?
We’ve explained the basics of errors and omissions insurance, but let’s dive into some specifics. Some common claims covered by E&O are…
- Giving inaccurate advice
- Not acting in good faith or dealing fairly
(Remember, professional liability only covers unintentional acts.)
If you feel that you could be at risk of facing one of these claims, E&O might be for you. Remember, everyone makes mistakes. And even if you don’t but someone says you did, the legal expenses of these claims can be financially draining to a small business.
How does E&O insurance work?
E&O policies are typically on a claims-made basis. That means that the filing of the claim and not the occurrence itself triggers the liability of the current insurer. At any rate, the policy will most likely come with a retroactive date.
Here’s the deal:
The retroactive date is the date before which the E&O policy will not pay claims. That means that the retroactive date will let you know how far into the past your policy will go to pay for wrongful acts from past years. For the current insurer to be liable for the claim, the wrongful act must have happened after the retroactive date.
And another thing:
E&O policies differ, so you have to be very careful to choose a policy that suits the specific risks your business faces. You also have to be sure to understand any exclusions within the policy.
How much does errors and omissions insurance cost?
The cost of E&O depends on many different details. Some factors that affect the cost of E&O insurance are…
- The type of business
- Your business’s claims history
- The claims history of your industry as a whole
- The policy you get
How to reduce E&O liability:
There are a few things you can do to reduce your business’s errors and omissions liability risk. You can…
- Have detailed, written contracts with each client that outline the project and fee
- Have a high standard of quality and service
- Communicate clearly and frequently with your client
- Ensure that their expectations are realistic
- Keep records of all communication with clients
Errors and omissions insurance can protect your business if you face a lawsuit in which a client alleges that the services you provided (or neglected to provide) caused them financial loss. If you feel that E&O might be a good idea for your business, let us get you some quotes. We’ll help you make sure you have the right insurance to protect you from your risk. All you have to do to get business insurance quotes is give us a call or fill out our online form.