Your small business faces risks each day. And to manage those risks, you have a plethora of small business insurance options at your fingertips. It's natural to wonder: of all the options, does your business really need Errors and Omissions Insurance?
In short, yes. If your business essentially sells your expertise or excellence, Errors & Omissions Insurance is crucial. It spares you from draining your bank account when someone dissatisfied with the quality of your work sues your business.
When Does E&O Insurance Coverage Apply?
Errors and Omissions Insurance ("E and O") steps in when someone sues your business, claiming your mistakes (real or perceived) caused them financial losses. The exact situations covered by E&O Insurance vary depending on your business, but range from the simple to the complex:
- If you're in the business of giving advice, your client might blame your recommendations for their economic loss, even if there were factors outside your control.
- While installing software, you could make a mistake that damages client property, loses their data, and halts their business. Your client could sue you for their losses.
(For more detailed examples of possible E&O lawsuits, see "Examples of Errors & Omissions Lawsuits.")
It's important to keep in mind that even if you never make a mistake, a client who believes you're to blame can still sue – forcing you to spend thousands on lawyers to defend yourself.
What Are the Financial Benefits of E and O Insurance?
The benefits of Errors & Omissions Insurance are simple: the policy covers your legal costs if you're sued for an E&O-related incident. These costs include…
- Administrative costs (e.g., photocopies, shipping costs, vendor costs, and travel costs).
- Court costs (e.g., filing fees, court reporter expenses, and fees for copies of hearing transcripts).
- Expert witness costs (usually thousands in and of itself).
- Settlement costs (e.g., the settlement amount, the cost of a mediator or arbitrator, and fees for drafting a settlement agreement).
- Judgment costs (e.g., trial costs and the verdict against you).
These costs add up quickly, often reaching several thousands of dollars for the simplest disputes.
How Much Does Errors and Omissions Coverage Cost?
Benefits are all well and good, but how much do they cost? The cost of your E and O policy depends on the nature of your business and your insurance history. A few key factors include…
- The level and origin of your revenue (are you dependent on one or two large clients?).
- Your internal quality control procedures and policies for client complaints.
- The policy limits and deductible you choose.
- How you use client contracts.
To learn more about what influences the cost of an Errors & Omissions Insurance policy, read "How Much Does Errors & Omissions Insurance Cost for Small Businesses?"
E&O Applications, Quotes, and Policies
To secure E and O protection for your business, you'll need to fill out a streamlined insurance application, review insurance quotes from multiple insurers, and ultimately sign a policy. The following articles will help you through the process:
If you'd rather learn on your feet, fill out an online insurance application to get going.