Small Business Owners’ Guide to Errors & Omissions Insurance

Professionals are often held to high standards of accountability by their clients. Unfortunately, they can sometimes make mistakes that may result in injury or damage.

Such mistakes can be costly for both the professional and the company where they work. As an owner of a company that provides professional services, clients may file claims against the company due to an error committed by one of your professionals. This might result in financial losses, which could bankrupt your business and force it to close.

To avoid this, businesses and professionals protect themselves against claims by dissatisfied clients with errors & omissions insurance.

What is errors and omissions insurance?

Errors and omissions insurance (E&O), also known as professional liability insurance (PLI), protects your business from claims by clients for negligence, malpractice, errors, or omissions allegedly made while providing a professional service. It covers claims arising from your failure to perform contractual obligations, such as completing work on time, providing inadequate advice, or failing to provide the level of service the client expected.

Errors and Omissions insurance typically covers the cost of a lawsuit and any resulting settlement if your business is found liable.

Who needs it?

It is important to note that, although E&O coverage may not be mandatory in all industries, some clients may require it when signing contracts. While it may seem like professionals such as doctors, architects, and financial advisors need E&O insurance the most, it is recommended for any business offering a professional service for a fee.

Anybody can make mistakes, including professionals with years of experience. An E&O policy is tailored to the type of business you operate.

As a printer, you may get sued if you fail to note a typographic error on a large order of engraved wedding invitations. A plumber may also face lawsuits if an apartment gets flooded after a failed repair.

Some professionals that can benefit from E&O include:

• Accountants
• Lawyers
• Consultants
• Insurance agents
• Marketing firms
• Medical professionals
• Engineers
• Architects
• Wedding planners
• Bookkeepers
• IT professionals
• Media professionals

What is covered by E&O insurance?

Generally, E&O insurance covers:

Legal fees: The policy will cover every expense related to defending you in court against a lawsuit filed by your client.

Court costs: The insurance will also cover the cost of paying for an expert witness to defend your innocence.

Settlements and judgments: If all parties agree to settle out of court or when you are found liable, the policy will cover the cost of settling the claim.

Always read your insurance contract to know what is covered and what is not.

What is not covered by E&O insurance?

Typically, E&O policy does not cover claims resulting from any of the following:

• Fraud
• Deception
• Bodily injury
• Property damage
• Employee injuries
• Data breaches
• Theft
• Infringement of patents or other intellectual property violations

How much does E&O insurance cost?

According to different sources, errors and omissions insurance can cost between $33 to $100 per month on average.

The cost of E&O insurance varies depending on several factors, including industry, professional experience, history of claims, business size, revenue, location, claims history, and coverage limits.

To save money on E&O, consider paying your entire premium upfront, choose a higher deductible for your policy, and have additional coverage like general liability insurance for your business.

Mistakes to avoid when buying an E&O policy

When purchasing E&O insurance, avoid these common errors:

Not assessing your unique risks

Some business owners think E&O insurance is for big companies only. That is not true. It is designed for every business that offers professional service for a fee irrespective of their size.

When purchasing a policy, ensure the decision is after a detailed assessment of your business risks. Industry risks differ, hence the need to ensure the insurance provides coverage for your specific risks. Failure to do this might lead to inadequate coverage.

Failure to thoroughly read the policy agreement

E&O insurance policies, like any other insurance policy, come with exclusions. Read through the policy details and exclusions to understand what to expect. Overlooking this can result in unpleasant surprises if a claim arises.

If needed, get additional coverage for claims excluded by your E&O policy. Do not be overconfident, probably because of your years of experience. You do not need to have committed an error to be sued by an unsatisfied client.

Inadequate documentation

E&O insurance is designed to protect you and your business from claims. However, the more claims against you in the past, the higher the premium you will likely need to pay.

To avoid this, ensure you have proper documentation of your interactions with clients. Maintain accurate records, contracts, agreements, and project details that adequately highlight what to expect from your service.

This can help avoid misunderstandings and disputes, which invariably reduce the possibility of your clients filing a claim.

Not comparing quotes

A poorly chosen E&O insurance policy can be as detrimental to your business as having no coverage.

The cheapest policy is not necessarily the worst, while the most expensive may not be the best. Also, avoid dealing with ghost brokers who sometimes offer deduced premiums after modifying policy data.

The right E&O insurance for your business should take into consideration your risks and provide adequate coverage.

Compare quotes from different insurance companies and select based on the value provided for the premium charged.

Failing to update your policy

As your business evolves, your insurance needs may change. Neglecting to review and update your policy can leave you underinsured.

Consult your insurance agent to help navigate the complexities of E&O insurance and ensure you have the right coverage for your specific needs.