Also known as professional liability insurance, , errors and omissions insurance provides protection to professionals from claims of defects or negligence with regards to their services or products.
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Most of today’s business owners are well acquainted with business liability insurance which provides them coverage against physical injury, property damage, etc. However, all types of situations are not covered by business liability insurance.
Errors and omissions (E&O) insurance helps resolve issues such as irreversible water damage to a home caused by a defective roofing repair or accidental mistake by a printing company while printing words or an image on a large order of T-shirts.
What is covered by E&O Insurance?
As implied by the name, errors and omissions insurance provides cover against professional errors as well as things that may get overlooked at times. If a customer is impacted by a professional error committed by someone and decides to initiate legal action, an E&O insurance policy can help the business pay the legal expenses.
According to statistical figures, one out of seven professionals has been involved in a lawsuit for errors and omissions, and a high percentage of these claims are related to allegations of misrepresentation or negligence. Any of these allegations could very easily result in hefty fines without proper insurance.
With an E&O insurance policy, a business owner can breathe easy because the policy will keep his or her company well protected against many different types of claims. The most common protection provided by E&O insurance is against a customer claiming that a service provided by the business led to his or her financial harm because the business committed mistakes while performing or delivering the service. In such cases, the insurance covers the legal expenses to defend the business as well as the potential damage awarded. Please remember that this insurance cover is not part of your general liability insurance or homeowner’s insurance.
It is also important to understand that criminal prosecution is not covered by E&O insurance coverage. Also, depending on the particular policy, some liabilities under civil laws may not be covered. Most of the policies, however, will cover claims that are related to negligence, misrepresentation, and violation of fair dealing and good faith. Some of the policies also provide coverage for violations of privacy. If you have already decided to buy errors and omissions business insurance, spend some time reviewing the available options to find the right match for your needs.
Who Needs E&O Insurance?
Purchasing errors and omissions business insurance can be an excellent decision for professionals working in various business sectors. This insurance is most commonly utilized by service industries such as software development, architecture, law, engineering, medicine, insurance, and accounting. This insurance is also fairly common these days among many veterinarians, beauticians, barbers, morticians, financial planners, realtors, appraisers, and trustees. In a nutshell, for anyone that gets paid by a client because of his or her expertise, E&O insurance is an excellent idea to protect the business from the impact of occasional slip-ups.
Companies rely mostly on well-planned risk management practices to prevent potential issues from becoming major business concerns. However, it can be a serious financial risk for them to operate without E&O. Moreover, ignoring E&O could also mean risking the reputation of a business which may even lead to loss of contracts in the long run.
Errors and omissions business insurance is ideally suited for:
- Businesses providing physical or advisory services
- Individuals functioning as a sole proprietor or operator of a service company
- Individuals performing contracted work with the help of employees
- Any business with a dedicated client base
- Individuals with clients that require him or her to purchase E&O insurance