Understanding E&O Coverage
Errors and Omissions Insurance coverage is the protection that shields you and your employees when clients accuse you of making mistakes that cost them money. These accusations may include claims that your work was inadequate, unprofessional, or incomplete.
As a small-business owner, you know all too well that a disgruntled client who blames your service for their financial loss might sue. If they do, your E and O coverage can help defend your business in many important ways.
Errors & Omissions Insurance Coverage Explained
Whenever clients depend on your services, they may blame you if things don't go as planned. That's where E & O coverage comes in.
E & O Insurance (also called Professional Liability Insurance or Malpractice Insurance) covers your business when it's sued over professional errors – real or perceived. For example…
- If a shipment goes missing, your client could sue, claiming the delay caused them to miss an important deadline.
- If a client follows your professional advice on how to run their business and they don't get the results they hoped for, they might sue to recoup their losses.
In short, E and O Insurance can help out when your client accuses you of mistakes, errors, careless conduct, or incomplete work. Even if you never made a mistake, you could still be sued.
How Does Errors & Omissions Coverage Protect My Business?
Whenever lawyers get involved in a dispute, it's expensive. Even if you can resolve the issue relatively quickly, you're still looking at a few thousand dollars in costs. If it drags on for months, those costs add up quickly.
E and O Insurance coverage can help pay for lawsuit expenses, which might include…
- Lawyer fees. Lawyers generally charge by the hour, and a lawsuit involves a lot of their time.
- Court costs. Filing documents with the court or using a court reporter at a deposition comes with a fee.
- Administrative costs. Lawsuits involve lots of trading of documents for lawyers to examine. That means shipping, processing, software, and photocopy charges.
- Settlements. Most lawsuits settle out of court to save both parties money, but you may still have to pay the plaintiff, depending on what your lawyer recommends.
- Judgments. If you go to trial and lose, you must pay a court judgment or risk a judgment lien being placed on your business assets.
To get a more concrete estimate of how E & O coverage saves you money, read "Why Errors and Omissions Insurance Costs Less Than a Lawsuit."
Is All E&O Insurance Coverage The Same?
Each Errors & Omissions policy – and the exact coverage it offers – differs based on the company's needs, priorities, and risk profile. For example…
- Policies may or may not offer coverage for certain risks, such as cyber liability, intellectual property claims, or regulatory infractions.
- The liability limits might differ.
- Deductible levels might vary.
- Some policies might exclude certain coverages, such as punitive damages.
When shopping for E and O Insurance coverage, it's a good idea to get quotes from multiple insurance providers and have an insurance agent explain how they differ and which one is best suited to your business. Here are six questions you might want to ask about the policy.
Is E and O Insurance Coverage Time-Sensitive?
Yes. Unlike other kinds of insurance, E and O coverage operates on a "claims-made" basis. If a dispute stems from work you performed before you obtained your E & O coverage, you won't be able to access your benefits. That's why the best to keep one E&O Insurance policy throughout the life of your business. See "Why Canceling Your E&O Insurance Is a Bad Idea" for a more detailed explanation.
If you let an Errors and Omissions policy lapse in the past, an Insureon agent can help you figure out how to protect yourself.