Work Comp for Small Businesses: 3 Reasons It’s ImportantDo you have coverage for common professional liability claims? If you have E&O insurance, you have financial protection against common lawsuits alleging professional negligence. Learn about the top risks that E&O insurance covers to understand why it’s so important.
What Is E&O Insurance?
E&O stands for errors and omissions. Coverage is also called professional liability insurance.
According to IRMI, E&O insurance provides protection against liability for committing an error or omission in the course of performing professional duties. E&O policies cover financial losses but not losses stemming from liability for bodily injury or property damage. (You can obtain that type of coverage through other policies, such as commercial general liability insurance.)
What Counts as an Error or Omission?
To determine what your E&O policy covers, it’s important to check the terms of your policy, as there are often differences between policies. Your coverage needs will likely depend to some extent on your industry. In general, though, as Investopedia explains, E&O insurance provides coverage for claims of inadequate work or negligent actions but not cover criminal activity.
The following five issues are common E&O risks.
1. Missed Deadlines
It’s easy to lose track of time when you’re busy, but missed deadlines can lead to lost opportunities as well as penalties and other financial consequences. For these reasons, missed deadlines are a common cause of E&O claims.
For example, if an insurance broker is supposed to submit paperwork to convert a term life insurance policy into a permanent life insurance policy but misses the deadline, the client may lose out on the conversion option. Alternatively, an accountant who forgets to mail an important letter to the IRS may cause a client to miss a tax deadline, causing the client to incur late penalties.
2. Breaches of Contract
Professional contracts iron out the details of a relationship to ensure both parties know what to expect and what is expected of them. However, one party may fail to adhere to the terms of the contract. This could lead to an E&O lawsuit alleging a breach of contract.
Common breaches of contract involve missed deadlines but also things like a failure to provide required services or goods. For example, if a contract states that an editor will provide in-depth substantive and structural editing but the editor merely provides some spelling corrections, the client can sue for breach of contract.
3. Inaccurate Advice
Clients rely on their professional service providers for expert advice. If that advice is inaccurate and leads to financial loss, the client can file an E&O lawsuit.
For example, if a financial planner recommends that a client use one type of account when another type would have provided vastly superior returns, the client may decide to sue.
4. Oversights That Result in Financial Loss
Often, it’s not what professionals do that lands them in trouble – it’s what they don’t do. When an oversight leads to a financial loss, the client may file an E&O lawsuit to recoup the loss.
For example, a real estate agent might fail to disclose important details about a property. When the client later learns about the issue, he or she may decide to file an E&O lawsuit.
5. Failure to Meet a Standard of Care
Professionals must generally meet the standards of their industry. When they fail to do so, clients who have suffered financially as a result may decide to sue.
Imagine you’re a computer programmer and have been hired by a client who wants a program that will allow streamlined online shopping. You finish the program on time, and your client accepts it. However, after implementing the program, your client experiences significant problems that causes most of the orders to fail to go through. As a result, the client losses a significant amount of revenue. A third-party consultant reviews the programs and concludes that it was poorly written and not up to industry standards. The client files a lawsuit against you.
Do You Need E&O Insurance?
If you provide professional services and an error or omission on your part could result in financial losses for your clients, you would benefit from the protection of E&O insurance. If you face a covered lawsuit, your policy will cover your legal costs up to the policy limit.
Heffernan Insurance Brokers can help you secure the E&O insurance you need to protect your career. Learn more.
