Insureon Blog

What Happens if I’m Sued? A Guide to Handling Errors & Omissions Claims

9. April 2014 08:39

Close up of medical professionals standing in a line

Errors & omissions claims are the stuff of nightmares for most small-business owners – and for good reason. According to a study conducted for the U.S. Chamber Institute for Legal Reform [PDF], over 50 percent of small-business owners interviewed said they have been threatened with a lawsuit. And many of these suits are filed without merit.

Think about it: you could meet all of your professional obligations and still get slapped with an E&O lawsuit from a disgruntled customer who claims your work simply wasn’t up to snuff. Many E and O claims are based on a client’s perception and other subjective factors, rather than the actual quality of your work. (For more information about what spawns E&O claims, read “What is Malpractice (Professional Liability)?” on our blog).

Even though most errors and omissions lawsuits are dropped or dismissed before they ever reach the courtroom, simply receiving a formal complaint can be perplexing. To prepare yourself for what happens when your business is sued, keep reading.

When Should You Contact Your E& O Insurance Provider?

For the purposes of this blog, we will assume you have already tried to resolve the issue with your client or customer before it became a claim, but they just wouldn’t budge. (Don’t forget to learn more about E&O claim prevention here: “How & Why to Prevent Malpractice / Professional Liability Lawsuits.”) Now you’ve been served with a formal complaint.

The first thing you should do is contact your E & O Insurance provider. There are two important reasons for doing so:

  1. You may not receive benefits otherwise. Most E & O (aka Professional Liability) policies include a clause that describes how quickly you must inform your insurer of a lawsuit. If you fail to deliver the news within the given timeframe, your insurer may be able to deny your claim.
  2. Your insurer can find a lawyer for you. That’s right: many Errors and Omissions policies not only help you pay for legal defense, but they also help you find a lawyer who specializes in professional liability claims. Without this coverage, you would have to complete this difficult task on your own.

You lawyer will review the formal complaint and decide what your next move should be. If the claim seems unfounded, your lawyer may try to get the lawsuit dismissed on legal grounds. Your lawyer may also decide it’s best to…

For more information on the mechanics of an errors and omissions lawsuit, check out our post “Understanding Errors & Omissions (Malpractice) Lawsuits.”

How to Keep Your Cool & Listen to Your E&O Lawyer

Finding yourself in the middle of an E&O lawsuit can be unnerving, but it’s important to remain calm and follow your lawyer’s instructions. Litigation is tricky business and even a seemingly innocuous remark – if overheard by the wrong ear – can hurt your chances of winning your case.

Errors & omissions lawsuits are already time-consuming and expensive – don’t make it harder on yourself! Here are a few general tips to keep in mind:

Besides helping you prepare for the best defense possible, these tips also help you stay on your insurer’s good side. In some cases, a failure to follow the rules could threaten your Errors and Omissions coverage.

The Cost of an Errors & Omissions Insurance Claim

Errors & Omissions / Professional Liability Insurance claims can be costly – even when they are dismissed or dropped. The cost of legal defense for a claim that never makes it to court can average between $2,000 and $5,000 dollars – a small fortune for many small-business owners. That’s why Errors & Omissions Insurance helps you pay for…

Every year, small businesses that make less than $1 million in revenue pay around $33.9 billion in self-insured and uninsured commercial liability tort costs. See the Tort Liability Costs for Small Business report for more statistics – but don’t become one! Talk to one of our insurance agents for more information about adding Errors & Omissions coverage to your small business insurance plan.

know your business risks


Errors & Omissions | Errors and Omissions Insurance | Lawyers | Malpractice Insurance | Risk Management | Small Business Risk Management | Tips for All Small Businesses

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