What Is Error and Omission Insurance?
Error and omission insurance, additionally known as E&O insurance, Malpractice Insurance, or professional liability insurance, is liability insurance to protect professionals.
It helps protect you from clients who filed lawsuits claiming you were negligent and made a mistake in your professional services in service-based industries. This insurance can provide coverage for your court fees or agreements, which can be very expensive for your company to pay on its own.
Most regulated professionals require this type of insurance because Commercial General Liability insurance policies do not protect against claims arising from professional practices such as negligence, malpractice, or misrepresentation.
What Is Covered by E&O Insurance?
E&O insurance coverage helps protect your business from claims of:
- Inaccurate advice
- Violation of good faith and fair dealing
- Personal injuries, like libel and slander
From defence attorney fees to court costs, liability claims can get expensive. If someone sues your business for having made a mistake, your E&O policy can help cover your:
Attorney charges, which can get an average of between $3,000 to $150,000.
Court costs, like reserving a courtroom or funding for expert witnesses.
Administrative costs to put your argument together. This coverage can support in paying court staff, such as:
- Office managers
- Legal assistants
- Court reporters
Settlements and judgments, which can range from a couple thousand up to millions of dollars.
Without E&O coverage, you are at risk of giving these types of expenses out of pocket. But you can rest easy remembering your policy covers most of these costs.
Error and Omission Insurance Exclusions
Illegal acts and purposeful wrongdoing: Error and omission insurance generally does not cover a claim if you purposely break the law or mislead your clients. For example, if your customer sues you after finding out you renovated their kitchen with fake materials, E&O insurance will not cover this claim against your business.
Employee claims: Include claims of work-related injuries and sicknesses or lawsuits related to work practices. You might want a workers' compensation insurance policy or employment practices liability insurance to cover these types of claims.
General liability claims: E&O insurance does not cover third-party bodily injury or property damage claims presented against your business. You'd need general liability insurance to help fund these types of claims.
Claims from events occurring before your policy date: Your E&O insurance policy can only cover claims following an event on or after your policy effective date. To have claims coverage from mistakes before your policy started, you'll need to add a retroactive date to your policy.
Criminal prosecution, nor all forms of legal liability under civil law, only those listed in the policy. Covering data breach, cyber liability, and other technical issues may not significantly be covered in core policies. However, the coverage that includes data security and other technology security-related issues is available as a separate policy.
Why Do You Need Errors & Omissions Insurance?
Without error and omission insurance, the cost of claims can be so pricey that they could put your business at risk of closure. Even if your customer dismisses their claim, your legal fees could still be thousands of dollars and might leave you in bankruptcy. Not to mention, if you are at fault or have agreed to reconcile the claim out of court, you can anticipate spending a huge amount out of pocket.
That's why it's necessary to protect your business with E&O insurance.
Who Needs E&O Insurance?
Businesses that usually need error and omission insurance include:
- Lawyers and law firms
- Engineers and engineering firms
- Accountants and financial institutions (accounting houses and brokerage firms)
- Advertising firms
- Teachers and educators in private practice
- Marketing firms
- Educational businesses, such as schools and colleges
- Consulting companies
- Website developers
- Printing and publishing companies
- Cultural organizations, such as museums and galleries
- Medical offices and healthcare facilities
- Pet services (veterinary offices and pet groomers)
- Barbershops and hair salons
Error And Omission Insurance Cost
Error and omission insurance will cost a varying price for every company. No matter the amount, when you examine the cost of errors to your business, paying an insurance premium would be worth it.
Error and Omission Insurance Cost Depends on Several Factors
Like any insurance policy, several factors can affect your error and omission insurance costs. These include:
Business risk: If you are in a higher risk industry, you expect to pay a more costly rate. For example, a business owner of a financial consulting company that advises on investing millions of dollars will probably have a higher premium fee than a smaller financial advisor.
Claims history: Generally, you may spend more on your E&O coverage premiums if you have a history of liability claims filed against your business.
Coverage limits: The higher your policy limits, the more coverage you will have, and that typically means higher premiums fee.
Location: Rates will most likely differ depending on the location of your business. For example, you may have a greater insurance cost if you operate in a hectic city.
To help keep your E&O insurance cost down, you can always:
- Train your employees
- Communicate with your customers regularly about issues to make sure they're satisfied
- Check your contracting system for quality control
The claims-made basis or occur basis
Claims-made policy. The insurance policy is only valid for claim when it is within the in-forced period. The coverage includes any error, omission, or negligent act done in the insured's professional business's conduct throughout the policy period.
On the other hand, insurance won't cover any occurrences before the policy begins except policies with retroactive dates.
Most of the error and omission insurance policies are on a claims-made basis.
Example of Professional Liability Insurance
One common example of a type of professional liability insurance is medical malpractice insurance. Medical professionals and specialists do their work under the not negligible threat of facing claims for purported medical negligence or malpractice, which is characterized as an act or omission by a medical professional in which he or she provides a medical treatment that falls below the standard of care, resulting to injuries to or even demise of the patient. While most medical malpractice cases are handled as civil torts in the US, medical malpractice insurance may offset such claims' cost to providers.