Errors and Omissions Insurance, also known as Professional Liability and Malpractice Insurance, is a coverage for Service Professionals, such as doctors, lawyers, accountants, architects, engineers, as well as advertising agencies to commercial printers, Web hosting companies to wedding planners. If you are in the business of providing a service to your client for a fee, you have an errors and omission (E&O) exposure. You need to consider what will happen if your services are not done correctly or on time, and it costs your client money or harms their reputation.
In general, E&O coverage is not part of a general liability policy (GL), it is a policy all on its own. In fact, most GL policies specifically exclude any and all professional services offered.
General liability policies are mostly written on an Occurrence Form, meaning that the policy activates coverage at the time of the actual “occurrence”, i.e. an auto accident. Errors & Omissions (E&O) policies are written on what is known as “Claims Made” Form, which mean the coverage is activated at the time the claim is made, not at the time of the occurrence. Any claims must be made or, in some cases, made and reported, within the policy period. These policies have a retroactive date
that becomes very important over time. Claims that arise out of acts committed prior to the retroactive date will not be covered. The farther back the retroactive date, the more coverage provided. Claims made coverage can be difficult to understand at first. We suggest you contact us if you have questions.
Many professionals purchase Professional Liability coverage simply to fulfill a contract requirement, but real world risks exist which can threaten the very existence of a business. A client can sue you for negligence in providing professional services, regardless of fault. Even frivolous lawsuits can incur significant defense costs that could severely damage the economic future or even bankrupt a moderate to larger business. How much can you afford to pay to defend the good name of your business? Ten thousand dollars? One hundred thousand dollars? A well written E&O policy will cover judgments, settlements and defense costs. A poorly written policy, or no policy at all, could shut a business down, and in some cases even leave the individual business owner holding the bag.
The cost of E&O insurance will vary depending on the type or class of your business, where you are located, and if you have had any claims. An insurance company that is competitive for architects and engineers may not be competitive, or may not even offer coverage for doctors, lawyers, or real estate agents.
When applying for E&O be prepared to give your insurance agent information and forms such as a completed application, copies of your standard contract, a description of quality control procedures, documentation procedures and training procedures. The insurance company underwriter will not only look at your experience to see if you have had claims, but they will also try to determine the reason you haven’t had claims. Is it luck or are you doing something that prevents the claim in the first place? And if you have had claims, what steps have you taken to ensure that the same errors will not continue to occur?
Your ace in the hole when buying Errors & Omissions insurance is to have a true expert agent who not only knows E&O coverages, but understands how to apply them to your business and which carriers offer the best programs and services for you.