Understanding Your E&O Insurance Quotes
As a responsible small-business owner, you know insurance is important. An unexpected lawsuit (and the thousands of dollars in legal defense costs) can strain your ability to run your company. It might even bankrupt your business. In order to combat this risk, you're looking into an Errors & Omissions Insurance policy.
Whether you've already obtained some quotes for Errors and Omissions (E&O) coverage or you haven't reached that stage yet, you need to know what your quote means. This article will help you understand how insurance estimates work and how to identify the right coverage for your business.
How Does Errors & Omissions Insurance Work?
E&O Insurance (also called Professional Liability Insurance or Malpractice Insurance) covers your legal costs in the event your business gets sued for professional negligence, oversights, or faulty products or services. Most of the time, these lawsuits are less a reflection of your actual work and more an indication of your clients' perception of how the project went.
Still, even small errors can lead to large liabilities. Imagine…
- You write down the wrong date for a crucial appointment or delivery time, and your client's business has to scramble for replacement services or products. Now you're on the hook for those extra costs.
- An employee accidentally ships goods to the wrong place, causing your client unexpected delays and losses.
- You install software that malfunctions, which forces your client's business to shut down so they can repair the system.
Remember: even if your company wasn't at fault, you will still have to pay a lawyer to defend you against a claim.
Getting a Quote or Estimate for E&O Insurance
When you buy a car, you don't just go to one dealership and pay the sticker price. Instead, you research, take a test drive, compare prices from multiple sellers, and consider how changing your options affects the price. If you're remodeling your office or house, you get bids from multiple contractors and scrutinize the materials used and the services provided.
Buying insurance is much the same thing. You should get detailed business insurance quotes from multiple reputable insurance providers and scrutinize the differences.
Not All E and O Insurance Quotes Are the Same
Comparing E and O quotes can be complicated, especially for those who are new to the world of insurance. How can you be sure you're comparing apples to apples? What are the right questions to ask? What's included in the quoted price, and what factors can make it change?
The first thing to keep in mind is that the price is not the final say on whether or not a policy is a good fit. Here are a few variables you should also consider:
- An E&O Insurance policy can contain many different types of coverage (e.g., coverage for lawsuits over intellectual property or data breaches).
- Deductibles (i.e., the amount you pay out of pocket toward a claim) can vary.
- Coverage limits also vary. For example, you'll want to see whether your various quotes have the same annual coverage caps and per-instance limits.
- Different insurance providers treat risks in different ways. An investigation of the line items of your quotes can show you the differences.
Another important thing to be aware of is whether the estimated cost of your quoted E & O Insurance premium includes a "right and duty to defend" clause. This provision means your insurance company must hire a lawyer on your behalf and manage your case. It can take a world of stress off your plate.
For more information on the "right and duty to defend" provision, check out our blog post "Small Business Insurance: When It's Worth It to Pay a Little Extra."
A Note about "Claims Made" Coverage
E and O Insurance operates on a "claims-made" basis. This means you can only receive your coverage benefits if…
- Your policy is active at the time of the alleged incident.
- Your same policy is in force when the claim is filed.
Depending on your state's statutes of limitations, you could be sued over a project you completed months or years ago. This is why it's important to speak with an insurance agent as soon as possible to assess your risk, get a quote, and get covered.
Need helping deciphering your E&O Insurance quotes? An Insureon agent not only provides you with detailed quotes from multiple insurance providers, but also helps you make an informed decision about your coverage.