Addressing your small business's risks with the right kinds of business insurance is essential to its survival. And if you've been wondering how Errors and Omissions Insurance (E&O) fits into the mix, keep reading. We've answered the most common questions about the coverage in this helpful guide.
Q: Does My Business Need E & O Insurance?
A: If you provide services, sell products, or give advice — YES. E&O Insurance protects your business when a disgruntled customer or client alleges your company provided defective products, negligent service, shoddy work, or bad counseling. Even if you're not at fault, a simple misunderstanding could trigger an E and O lawsuit.
Errors & Omissions Insurance steps in when…
- A miscommunication leads a client to think you didn't deliver on your promises.
- A data-entry error causes you to miss a deadline or ship the wrong product.
- Your client commits regulatory, legal, or tax code violations because of an oversight on your part.
- The product you sold or installed malfunctions, bugs out, or causes complications that interrupt your client's business.
Q: How Does E and O Insurance Protect My Bottom Line?
A: By covering your legal expenses in case of a lawsuit. Getting sued is one of the few occurrences that can force your business to close its doors for good. Even if you aren't found liable by a court, you'll still have to pay…
- Hourly fees for every minute your lawyer spends on the case.
- Expert witness fees.
- Administrative costs like copying, data processing, document collection and review, shipping costs, and vendor expenses.
- Court fees for filing documents and court reporters.
- Settlement amounts that make the case go away.
These costs add up — even a simple, average-length lawsuit can cost anywhere from $10,000 to $75,000.
Q: Does E and O Insurance Protect My Business Against Frivolous Lawsuits?
A: YES. Your E&O policy pays your legal defense costs even if your company wasn't at fault.
Q: How Much Does E&O Insurance Cost?
A: It depends. There are many factors that influence the cost of your E&O policy, including your industry, your claim history, and choices you make about the breadth and limits of your coverage. For more information on the cost of E and O Insurance, read "How Much Does Errors & Omissions Insurance Cost for Small Businesses?"
Q: Should My Company Always Carry E&O Insurance, or Can I Buy a Policy Only When I Need It?
A: You should always maintain an E & O Insurance policy. Ideally, you would carry one policy throughout the life of your business. The reason is that — unlike other insurance coverages — E and O Insurance is a "claims-made" policy. That means you're only covered for claims arising from incidents that happen during an active policy period. For claims or incidents that happened before or after you had Errors & Omissions Insurance, you're exposed. If you don't currently have E&O Insurance or let a previous policy lapse, and insurance agent can help you protect yourself for uncovered periods.
Q: Are All E and O Insurance Policies the Same?
A: NO. No two E & O policies are the same. There are quite a few options in terms of included coverage, deductibles, policy limits, and exclusions that not only influence price, but how much protection your policy provides. That's why it's important to scrutinize every E & O quote and not just compare based on cost. Our article "E&O Insurance Quotes and Estimates: What Small Business Owners Need to Know" provides more information on how policies might vary.