Any professional can make a mistake regardless of how good they are at their craft. Even if the professional is innocent, defense costs can mount up, putting a financial strain on the business. To protect the professional and their business if they get sued, Errors and Omissions Insurance (E&O) is a worthwhile solution. To help you become more familiar with this topic, let’s explore what E&O insurance is, what it covers, and who needs it.
What Is Errors and Omissions Insurance?
Errors and Omissions Insurance is a type of commercial insurance policy that protects against lawsuits over transactions between professionals and their clients. It’s often needed when the client feels the professional has caused them harm.
E&O, also known as professional liability insurance, protects individuals and companies against the following types of allegations:
- Errors
- Oversights
- Professional negligence
- Misrepresentation
- Bad or inaccurate advice
- Failure to meet a deadline
- Failure to deliver a specific service
- Failure to meet a standard of care
- Violation of good faith and fair dealing
- Personal injury claims (libel and slander)
An error or omission can easily occur despite a professional’s commitment to diligence and professionalism. For that reason, E&O is a staple of commercial insurance for professionals.
Why Professionals Need E&O Insurance
In considering the various types of commercial insurance your business needs, E&O insurance should be high on your list for various reasons.
- Company investors may require a business owner to have E&O insurance before investing in your company. Even if investors don’t require business owners to have E&O coverage, it will be easier to attract investors if you have it.
- Another reason to purchase E&O insurance is that payouts from lawsuits can be extraordinarily high. A study by Ames & Gough, as cited in Insurance Journal, states that a couple of legal malpractice suits settled in amounts over $250 million. Most of the insurance companies surveyed stated they had paid out claims of over $150 million. Another article in Insurance Journal states that average E&O claims in the nurse practitioner field were over 430,000 in 2022.
It’s always unsettling to learn that a client is unhappy with your services, and it’s even more unsettling to learn they’ve decided to take legal action against you. An E&O insurance policy can give you peace of mind in knowing that your business can continue as usual until a claim gets settled.
What Types of Professionals Need E&O Insurance?
Any professional who provides a service to clients for a fee should have E&O insurance. Here are a few of the most common professions that need E&O insurance:
- Insurance agents and brokers
- Doctors
- Dentists
- Accountants
- Lawyers
- Financial planners
- Engineers
- Website developers
- Wedding planners
- Barbers and hair stylists
- Consultants
What Errors and Omissions Insurance Covers and Doesn’t Cover
Regardless of the industry, professionals should be aware of what E&O policies cover and what they exclude. Professionals should read through their policies carefully—especially since every policy is different. But in general, E&O policies cover the following things:
- Legal administrative and defense costs
- Attorney fees
- Settlements and judgments up to a certain amount
- Disciplinary proceedings
- Loss of earnings
- Subpoena assistance
E&O policies also commonly exclude the following issues:
- Acts that are criminal, fraudulent, or dishonest
- Damage to someone’s property
- Third-party injuries
- Employment matters
While these issues aren’t covered by E&O insurance, they may be covered by other commercial insurance policies such as general liability or workers’ compensation.
How Much Does E&O Insurance Cost?
Because every business is different, insurance companies consider various factors when determining rates for E&O insurance. These are the types of questions insurers ask and the reasons they have a bearing on E&O insurance rates:
- Size of the business – Businesses with more employees have greater risks.
- Amount of annual revenue – High revenues generally carry higher risks.
- Type of industry – Certain industries such as the building trades have higher risks of property damage as well as other professional liability risks.
- Employee training – Well-trained employees reduce risks.
- Typical contracts – The verbiage in contracts may increase or decrease liability risks.
- Location – Different states have various minimum limits for professional liability.
- Claims History – Companies with claims will have to pay higher premiums until their loss experience improves.
- Coverage limits – The higher the limits of liability you select, the higher your premium will be.
These and other factors help to form a risk profile for your business. If cost is a concern, your insurance agent may be able to suggest ways to reduce the premium—such as adjusting liability limits or mandating training for employees.
E&O Insurance Rounds Out Other Commercial Policies
Although E&O insurance isn’t legally required for any type of business, it’s just as important as other commercial coverages. An E&O policy can help prevent out-of-pocket expenses and disruptions to your business.
To get a quote on E&O insurance or any other type of commercial insurance, contact one of our agents at Leap Carpenter Kemps Insurance Agency at 309-384-0727 today!