You may know it as professional liability or, by its abbreviation, E&O insurance. It is only natural that at the beginning of providing your services, not all your ducks are going to be in a row. Fine tuning a business always takes some time. However, during that time, unhappy and unsatisfied customers, may choose to take you to court for a number of reasons.
The legal fees alone are enough to cost you quite a bundle and throw your entire financial planning in chaos. Errors and omissions insurance is designed to help you avoid this from happening.
What does E&O Insurance protect you from?
No matter how professional you are in your business, mistakes can always happen. A dissatisfied client may accuse you of:
- Not delivering the services that you promised
- The services you provided were not professional due to negligence
- There were errors and oversights in your work
The policy will pay for:
- The lawyer fees, the witness fees, the court expenses and any other cost related to the judicial procedure
- Any court ordered settlements and compensations
- Lost income during the time spent in court
- Other (specifically stipulated in the contract) expenses that you may incur and are related to defending yourself
Things to pay attention to
Standard E&O policies always have exclusions just like auto and home policies do. The professions that are considered extremely high risk may have difficulty procuring a good insurance policy. When opting for such a coverage, you need to be careful and select one with terms and conditions that will provide adequate coverage for the risks that are the most likely to happen to your business.
Not only does E&O cover the business owner for when the give faulty advice or services (errors) or fail to give any advice, or provide any services at all (omissions), the coverage also extends to their employees. This means that if the employee is the cause of the error or the omission, they are still covered by the company policy.
How much would an Errors & Omissions policy cost?
The deciding factors on the premiums of such a policy are the sort of services rendered, the location of the business, its size, the annual revenue and the coverage limit.
- Errors & omissions coverages DO NOT include liability for intellectual property. This is an entirely separate issue. However, if a person needed this protection, there is a specific coverage in a general liability policy that protects intellectual property.
- Errors & omissions policies usually work on a “claims made” basis, which means that you need to have your policy put in effect before any accident occurs and before any lawsuit is filed against you.