What Is an Errors & Omission Insurance Policy?
Experienced entrepreneurs realize the importance of protecting their interests through insurance, but it is important to research the different options available before choosing policies. To start, general liability insurance is important to protect businesses from things like property damage and injuries. Depending on the size of the company and risk involved, you might also need to get additional coverage like an errors & omission (E&O) insurance policy. What is this exactly, and what kind of protection does if provide?
What is E&O Business Insurance?
Errors & omission policies offer specialized liability protection for losses that are not covered by regular liability insurance. In essence, they protect you and your business from lawsuits claiming that mistakes were made in your professional services. Examples of those might include:
- Breach of contract
- Failing to meet a standard of service
- Failing to meet deadlines or deliver services
- Incorrect advice
- Mistakes in work (typos, wrong calculations)
- Omissions or errors in services provided
- Violation of fair dealing/good faith
This kind of specialized insurance can shield you from lawsuits that assert these kinds of claims, by providing benefits to cover settlement fees, court and administrative costs, and attorney fees. To be eligible, the incident must have occurred on or after the policy’s retroactive date; claims must be filed within the policy period (or an extended reporting period, if applicable). These policies differ depending on the carrier, but should always cover the business owner, employees, and any subcontractors who are working for your company.
Do I Really Need E&O Insurance?
Not all businesses need E&O insurance (some states required it) but for some, it can make the difference between sinking and swimming. Here are a few examples of how these policies can protect companies:
- A cybersecurity company uses a vendor who opens a phishing email that hacks into the client database and steals private information. The business could be sued for negligence when that client asserts that minimum industry standards were not met.
- A commercial real estate agent types in that the office space on a listing is 25,000 square feet but makes a typo – the size is actually 15,000 square feet. After the property is sold, the new owner sues the agent or agency for making the error.
- Companies often miss deadlines, and while this is not always that problematic for clients, it could be for things like filing taxes because penalties are incurred.
- Unfinished services can also leave clients in a lurch when it impacts their bottom line. If a button manufacturer failed to deliver 10,000 buttons in time for a clothing company to complete and ship out 2,000 cardigans to fulfill an order, that clothier might turn around and sue the button company.
What is Professional Liability Insurance?
“Professional liability insurance” is another name for E&O insurance. Again, it is used when clients or customers find fault and attempt to sue businesses for work mistakes that led to injuries or financial losses. Remember, businesses are vulnerable to lawsuits because they provide products and services to others and because there is always a chance for human (and machine) error.
Not having E&O insurance could put you at risk for losing your company or suffering losses that take years to recover from. Liability claims can be very expensive, and you can still face significant legal and administrative expense even if the client drops the case. If you agree to settle a claim, the out-of-pocket costs without that added insurance coverage can be devastating.
Learn All About Errors & Omission Insurance from the Knowledgeable Plainfield Insurance Lawyers at Herold Law, P.A.
If you have questions about E&O insurance, the knowledgeable Plainfield insurance lawyers at Herold Law, P.A. are available to answer your questions and provide sound legal advice. Call our Warren, New Jersey office at 908-647-1022 or complete our online form to schedule a confidential consultation. We serve clients in Warren and Plainfield.