Errors And Omissions (E&O) Insurance
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ERRORS AND OMISSIONS (E&O) INSURANCE

Introduction: E&O

Introduction: E&O

Errors and Omissions Insurance (aka E&O, Professional Liability, or Malpractice Insurance) shields professionals and small businesses from the high cost of services-based lawsuits. The policy steps in when a customer files a civil lawsuit against your client, claiming they provided inadequate or negligent work that caused financial losses.

E & O Insurance Basics

E & O Insurance Basics

Errors & Omissions Insurance protects your client when a third party claims they suffered damages as a result of your client's services or incomplete work. An unsatisfied customer might allege they experienced a financial loss because of your client's..

  • Incomplete or inferior products.
  • Failure to deliver contractually obligated services.
  • Carelessness when providing professional services.
  • Errors in delivering a service or product.

For example, say your client is a mortgage broker and a customer hires her to obtain a loan at a certain rate. Your client allegedly doesn't act in a timely manner, which causes the customer to "miss out" on the lower rate. If the customer sues your client for negligence, E and O Insurance may cover the legal expenses, including attorney fees, court costs, and witness fees - even if the lawsuit turns out to be meritless. E&O may also pay judgments or settlements up to the policy limit.

As you probably already know, Errors & Omissions Insurance is different from Workers Compensation Insurance and Employment Practices Liability Insurance. While these coverages focus on the employer-employee relationship, E&O is concerned with third-party lawsuits over negligence, misrepresentation, and malpractice.

Who Needs Errors and Omissions Insurance?

Who Needs Errors and Omissions Insurance?

The first answer to that question is any professional who provides services or products for a fee. The most traditional examples are doctors, lawyers, engineers, architects, and accountants. In addition to these, many professionals have E and O exposure because they possess a special skill or knowledge that allows them to provide services to a customer. Here are a few examples:

  • Appraisers.
  • Home inspectors.
  • Web-hosting companies.
  • Commercial printers.
  • Staffing agencies.
  • Property management companies.
  • Real estate agents.
  • Consultants.

As you can see, the list contains a wide variety of professions. If you have a client who provides a service, product, or advice, they should seriously consider adding this policy to their business protection plan.

Important Facts about E and O Insurance

Important Facts about E and O Insurance

Here are some key details about Errors & Omissions Insurance to keep in mind while helping your clients find a policy that fits their needs:

Know the Difference between "Claims-Made" and "Occurrence" Coverage

E&O Insurance can be purchased as a "claims-made" or an "occurrence" policy. For a claims-made policy, two conditions must be met in order for your client to receive coverage:

  • Your client's policy must be active when the incident occurred.
  • The same policy must be active when the claim is filed.

Some policies include a "retroactive date" that provides coverage to your client prior to the policy period.

With an occurrence-based policy, your client is covered if the act, error, or omission happens during the policy period. Even if a claim is reported outside of the policy period, your client is covered so long as the event occurred while the policy was active.

Pay Attention to Exclusions

No policy covers everything, but E&O Insurance has some common exclusions, such as criminal prosecution. E and O only deals with civil torts. It also won't cover claims over bodily injuries or property damage. Your client's General Liability Insurance handles those kinds of claims. Finally, E & O policies don't typically include Cyber Liability, which covers events such as technology malfunctions and data breaches. However, Cyber Liability Insurance can be added on to an E&O policy, depending on the carrier.