E & O Insurance — a.k.a. Errors & Omissions coverage — is a must for any individual or company providing a service. It covers you and/or your company against liability in the event that a client suffers a loss due to an error or something you overlooked while providing a service for them.
In the medical profession, malpractice insurance is an example of E & O insurance. Lawyers refer to it as Professional Liability Insurance. Its purpose is to protect you and your company when a client sues over a problem with your service — whether it’s a real or a perceived consequence of your work. You might be accused of an error, incomplete work, carelessness, or any other perceived failure on the part of your business. Even if you’re innocent, a client can still sue you and you’ll have to hire a lawyer to defend your business in court.
How Professional Liability Insurance Protects You
Anytime a client sues a company, the need for a lawyer’s services arises. Lawyers, as you know, do not work for free. In fact, they’re downright expensive. But if you have E & O insurance, it will cover things like
- Defense Costs (attorneys fees) – Lawyers usually charge by the hour, so the longer they work on your case, the more they’ll charge.
- Court Costs – Any time you file a document in court or use a court stenographer to give a deposition, you’ll be charged.
- Administrative Costs – These include shipping charges for documents sent between lawyers, photocopy charges, processing and software charges, etc.
- Judgements and Settlements – If you’re found liable, you’ll have to pay a court-ordered judgement, or risk having a lien placed on your business. If your lawyer senses that the case is going against you, he/she may recommend that you settle. Either way, it’s costing you and your business serious money.
If yours is a small business, these legal costs can be devastating, and even lead to bankruptcy. Even a larger business can be negatively impacted for years by a law suit the drags on for months.
When to Buy E & O Insurance
Ideally, E & O insurance will be a part of your insurance portfolio the day you start providing your service, but if it’s not, any business that provides a service should add it as soon as they possibly can. In fact, having this type of insurance is a prerequisite for some clients who want assurance that they’ll be compensated for a loss should something go wrong.
Is Coverage the Same for Every Business?
Your coverage will depend on your specific company’s needs, its priorities and how high its risks actually are. For example, a policy may not cover risks pertaining to something like intellectual property or cyber security. In short, the answer is that there is not any standard wording for E & O insurance policies. You’ll need to work with an agent who’ll help you understand a policies wording to ensure that it covers your businesses actual risk exposure.
As with any insurance policy, things like limits of liability, deductibles and exclusions will vary. Costs will vary greatly depending on the type of service you provide, risk exposures, your company’s location, and even from insurance company to insurance company. Another factor will be your company’s history of problems or issues with clients, and what, if any, safeguards you have in place to help reduce your risks (e.g. contracts that clearly communicate what your service will provide and what it won’t, your business’ quality control standards, etc.). In general, the more safeguards you have in place, the less expensive your policy is likely to be.
If you run a business in the San Diego region and don’t currently have professional liability insurance, or if you’ve let a policy lapse, contact us at Axelrod Insurance today and let us help you protect your business before it’s too late.