What Is E&O Insurance?

Most businesses take extra precautions to ensure that their products and services meet customer expectations. Unfortunately, there is always a risk that your company may encounter unsatisfied customers. If a disgruntled customer takes legal action against your business, the financial consequences can be substantial. While you cannot always stop an unsatisfied customer from filing a lawsuit against your company, you can protect your investment from the costly repercussions. The way to protect is with E&O insurance.

So, what is E&O insurance? Errors and omissions (E&O) insurance is a specialized type of insurance that can protect your small business from the financial risks associated with lawsuits resulting from professional errors. This popular form of business insurance covers legal fees, defense costs and related expenses.

What Is Professional Liability?

E&O insurance, otherwise known as professional liability insurance, is designed to protect traditional professionals, as well as certain quasi-professionals against liability that has occurred as a result of errors and omissions while performing services. Professional liability insurance is not typically offered under most in-home business policies or business owners’ policies. This type of insurance also only covers claims that are made within the specified policy period.

Claims that are not covered by general liability insurance may be covered by a professional liability insurance policy. This may include claims relating to negligence, violation of good faith and fair dealing, misrepresentation and inaccurate advice. If your service or counsel could result in losses by your customer or client and you could be held responsible, you may want to purchase professional liability insurance.

Consulting and Advice Services

Without errors and omissions insurance, your small business is at risk of losing money due to legal claims and lawsuits. These suits could negatively impact the growth of your business and make it difficult to continue normal operations. While not all businesses require E&O insurance, most businesses that offer consulting and/or advice services can benefit from having a policy.

Some of the most common professionals that protect themselves with E&O insurance include accountants, auditors, engineers, lawyers, architects, IT consultants, property managers and real estate professionals. Other types of professionals that should have an E&O insurance policy include title agents, management consultants, appraisers, medical professionals and wedding planners. This is not an exhaustive list, meaning, if you operate another type of business, you could also benefit from E&O insurance.

Examples of Claims

No business is perfect and even experienced professionals are at risk of making errors that could result in a lawsuit. E&O insurance can help protect against these losses that are not covered by traditional business insurance. Errors and omissions insurance most commonly protects against claims of negligence and mistakes that are made that result in a financial loss.

For example, say that you are a professional printer and are printing off engraved wedding invitations for a client. You make a simple typographic error and deliver the invitations to your client without realizing your mistake. If there is not enough time to reprint the order before the wedding, the client could sue you for the mistake. E&O insurance covers all types of professionals, even contractors. Say a plumber makes a mistake and the errors result in the flooding of an office. The lawsuit to follow would generally be covered by errors and omissions insurance.

Who Needs E&O Coverage?

Errors and omissions insurance can be invaluable whenever you or an employee provides a service to a client that he or she could claim as inadequate or negligent in nature. For example, if you are a real estate agent and fail to disclose a known defect in a property before closing, the homebuyer could allege that you did not disclose these defects that have a diminished value on the home.

Even if you feel like a lawsuit against you is completely baseless and has no chance of winning in court, you could still face some hefty expenses in the form of legal fees. Without E&O insurance, these fees will likely come out of your pocket.

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If you have recently opened a business, are in the process of opening a business, or have an established business but want more protection, errors and omissions insurance can be a valuable addition to your company. Attorney fees, court costs, administrative expenses and potential settlements can quickly add up, resulting in thousands or even millions of dollars in damages. Without the proper insurance policy, you could end up paying these expenses out-of-pocket. As a worst-case scenario, you may be forced to claim bankruptcy and close down your business.
E&O insurance can provide business owners with easy access to legal advice, preserve your assets, lower your stress, and create stronger financial certainty. To learn more about errors and omissions insurance or to acquire an E&O policy for your small business, reach out to the business insurance experts at John M. Glover Insurance Agency.