To the uninitiated, business insurance can be intimidating. After all, there are so many risks, potential liabilities, and insurance options to mull over. To help you navigate these complex waters, let's look at some important facts about a key business insurance policy: Errors and Omissions Insurance (E&O).
E and O Insurance "Guarantees" Your Work
Every day, just by working, you and your employees expose your business to potential lawsuits. A number of easily imagined circumstances can subject your company to thousands in uncapped liabilities. For example…
- An employee fills out an order form incorrectly, swapping two digits in a model number. Your customer subsequently receives a crate of the wrong product and can't complete their orders on time. They sue you to recover business losses.
- While inspecting client property or documents, you overlook a key defect and your client gets sued because of your oversight. In return, they sue you to recoup their losses.
E and O Insurance is the only insurance policy that covers your business against allegations of mistake, carelessness, breach of contract, or professional negligence. Having this coverage proves that your business has the means to account for any mistakes or snafus that could cause your clients serious losses.
E & O Insurance Protects You from Frivolous Lawsuits
Sure, everyone makes mistakes. But your business could face a lawsuit even if your company did everything right. A miscommunication or other misunderstanding may leave a client thinking your business is at fault even when you're not.
And just imagine how awful it would be to spend tens of thousands of dollars on a lawyer, court costs, and settlement fees to defend your business against a meritless claim! Luckily, E&O Insurance covers those expenses and allows your insurance company to manage your defense. That way, these frivolous claims don't drain your bank account or distract you from your business.
E&O Insurance Has Multiple Names
Depending on your line of work, you might know Errors and Omissions coverage by a different name:
- If you are a consultant, contractor, or engineer, you might know E and O as "Professional Liability Insurance."
- If you are a doctor or lawyer, you probably know E & O coverage as "Malpractice Insurance."
Regardless of the name, E&O provides the same coverage — it pays for the costs arising from claims that your business didn't fulfill its professional obligations.
E and O Insurance Covers More Than Just Your Lawyers' Fees
Lawyers are expensive. Because most lawyers charge by the hour, your bills reflect all the time your attorney spends reading documents, writing emails, speaking with you on the phone, interviewing witnesses, and traveling to court.
But legal defense fees aren't the only costs associated with a lawsuit. E & O Insurance also covers the following expenses (which can add up quickly!):
- Court costs for filing documents and paying court reporters.
- Expert witnesses fees.
- Copying, filing, and software charges.
- Arbitrator or mediator fees.
- Settlement expenses.
- Trial-court judgments.
Your E and O Insurance Rates Depend on Your Risks
Like all insurance policies, the price of your E&O coverage depends on your business's risk profile. If your company is at greater risk of error-related suits (or the cost of such suits in your industry is higher), your insurance premiums will be higher.
By implementing certain risk management strategies, you can lower the cost of your E and O policy. For more information on what influences the cost of E & O coverage, read "How Much Does Errors & Omissions Insurance Cost for Small Businesses?"
E & O Insurance Operates on a Claims-Made Basis
A significant way that E and O coverage differs from other insurance policies, such as General Liability Insurance or Commercial Property Insurance, is that this policy operates on a "claims-made" basis.
In short, "claims made" means timing is important. Your business is only covered for incidents (and claims arising from those events) that happen while you have an active E&O policy. For claims that stem from mistakes (or alleged mistakes) before or after your policy period, you can't count on your insurance benefits to cover you.
To get E&O quotes sent right to your inbox, fill out an online insurance application today.