Insureon Blog

Understanding Errors & Omissions (Malpractice) Lawsuits

4. April 2014 08:33

Woman in scrubs standing among medical files

An errors & omissions (aka malpractice) lawsuit can happen to anyone. But that doesn't mean all small-business owners are familiar with what happens when someone is unhappy with your work and decides to sue your business.

Many E&O claims can be resolved before they become a full-fledged lawsuit. Let's take medical malpractice lawsuits, for example. According to Medscape's Guide to Winning Your Malpractice Lawsuit, about two-thirds of all malpractice claims are withdrawn, dismissed, or dropped. Only about eight percent of medical malpractice lawsuits ever reach a courtroom.

As with any lawsuit, your best chance of weathering an errors and omissions claim is to know what to expect. Let's take a look at how E & O / malpractice lawsuits work, starting with the types of situations that can prompt a claim.

What Causes E & O / Malpractice Claims?

The first stop on the road to an E & O claim happens when a third party (i.e., someone outside of your business) expresses dissatisfaction with your professional services. If you can't find a way to resolve the issue, you could receive a "formal complaint" (or a "summons") from the third party's lawyer. This document outlines your alleged transgression.

Remember, errors and omissions claims are related to the work you do. Common claims stem from…

The point is this: unhappy customers cause errors & omissions claims. It's important to realize that many complaints don't have anything to do with the quality of a professional's work. If someone ever feels slighted or that they didn't "get their money's worth," your business could end up getting served with a formal E&O complaint.

What Happens After You're Served with an E and O Complaint?

As soon as you receive a formal complaint, you should immediately contact your insurance provider. Most E & O Insurance policies stipulate that insurers have the duty to defend you. That means your insurance carrier will find a lawyer who specializes in E & O / malpractice lawsuits to provide you with legal counsel.

This is one of the reasons why it's extremely important for small-business owners to carry Errors and Omissions Insurance with the rest of your small business insurance. Without it, you would have to orchestrate a defense on your own. However, most insurance policies have instructions about how quickly you must contact the insurer in the event of a complaint. If you don't notify them in time, your benefits could be void.

Your lawyer will read through the formal complaint, which includes information such as…

The lawyer will also ask you questions about the case. Your insurance provider may do their own research to see if the plaintiff is up to no good (e.g., has a history of fraudulent claims). Then your lawyer will decide what to do next. There are a few options:

If the claim is dismissed, you have nothing more to worry about. And if your Errors & Omissions Insurance provides funds for legal defense (which most do), you won't pay anything more than your deductible.

If the claim isn't dismissed, you'll have a meeting with the court to set deadlines. Often, one of the deadlines will be for a mandatory settlement conference where you'll get the chance to settle the dispute out of court.

If you can't reach an agreement during the settlement process, you'll enter the period of "discovery," where you and your lawyer gather evidence for your defense. This might include records (like medical records, sales receipts, invoices, etc.), written testimony, and interviews with the attorneys.

Before the case actually goes to trial, you and your lawyer can try to:

Essentially, you can decide to settle a case at any point during the process — even during the trial. Most of the time, settlement is the most cost-effective solution for everyone involved.

How Can Small-Business Owners Win an Errors & Omissions Lawsuit?

All defendants are innocent until proven guilty — and an errors & omissions lawsuit works no differently. This places the "burden of proof" on the person who initiates the lawsuit. E & O lawsuits are civil (not criminal) cases, which means the plaintiff must prove they are "more correct" in the dispute than you are. In order to rule in favor of the plaintiff, juries are often told that they must be "51 percent sure" you are guilty of the allegations.

To win over the jury, plaintiffs must prove certain aspects of an Errors and Omissions case. Generally, they must illuminate…

If any one of these factors isn't proved to the jury, you'll likely win your case. If you lose, you can always appeal and start the process over.

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Tags:

Errors & Omissions | Errors and Omissions Insurance | Insurance Terms Explained | Malpractice Insurance | Professional Liability Insurance | Risk Management | Small Business | Small Business Risk Management

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