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An errors and omissions insurance policy, also known as professional liability insurance, provides financial protection for you and your business if you are accused of making a mistake, professional negligence or not delivering on business agreements.
Regardless of whether an accusation is warranted or not, it will take time and financial resources for you to respond. Small business errors and omissions (E&O) insurance can provide coverage for associated costs up to your policy limit, helping you to avoid disruptions to your business and out-of-pocket expenses.
Most businesses that provide a service or offer professional advice can benefit from an E&O policy. Common business types that purchase a policy from us include:
It’s important to include E&O insurance in your business insurance package to make sure you are protected from risks that you could be exposed to while making business decisions with your clients, customers, or business partners.
For example, E&O can cover costs up to your policy limit if:
Here are some other benefits of errors and omissions insurance:
When you have errors and omissions insurance, you’re letting your clients know that they will be protected if you make a mistake that financially hurts their business.
For many professions, E&O insurance could be required to get a professional certificate or license, or your clients might ask you to have coverage before they sign a contract with you.
For example, a real estate agent might need to purchase a real estate E&O policy and provide a certificate of insurance before signing on with a broker. Insurance agents often need to have coverage before they can work with an insurance carrier or agency.
Business disagreements can escalate into legal actions. If your business is accused of professional negligence or making a mistake that causes financial harm, your errors and omissions coverage can help you pay for related expenses until you reach your policy limit.
For example, if there is a fire in an apartment building, a tenant could file a professional negligence lawsuit that claims the property manager did not properly inspect smoke detectors.
Some other areas where errors and omissions insurance can provide coverage, include:
Disciplinary proceedings – Costs to defend yourself in cases brought against you by a professional review board or licensing organization.
Crisis management – Expenses for retaining a public relations firm after an accusation of professional negligence.
Subpoena assistance – Costs to produce documents and testify in response to a subpoena.
There are three core areas where errors and omissions insurance can protect you from unexpected costs:
You can make all the right moves at your business, but mistakes are still not 100% avoidable. After you pay your deductible, E&O insurance can protect you from out-of-pocket costs until you reach your policy limit if you or your employees are accused of making a mistake that causes financial harm to another person or business.
Example: In the excitement of closing a deal on a prime piece of property, a real estate agent forgets to disclose a defect with the home’s siding that will cost $20,000 to fix. The person who purchased the home could file a lawsuit against the agent. The agent’s E&O coverage would cover some expenses up to the policy limit.
When you provide professional services, you are expected to act in the best interest of your clients. Lawyers call this “duty of care.” If your business actions lead to financial harm, you could be accused of professional negligence and forced to defend yourself.
Your E&O policy would cover related expenses up to the limits of your policy, including your lawyer and legal fees and judgments if you are ruled liable for your client’s losses.
Example: A hot new company’s stock is about to hit the market. It’s generating a lot of buzz, even though it’s known to be a potentially volatile option. A financial advisor goes all in with a client’s investments, even though the client prefers a more conservative and balanced approach. A day later, the stock tanks and 80% of the investment is wiped out.
The client could have grounds for legal action against the advisor. The advisor’s E&O coverage would pay for defense expenses up to the policy limits.
Depending on your industry, deadlines can make or break a business. If you miss a deadline on a project that causes significant financial losses for your client, you could be asked (or forced) to pay for the damages. Your E&O policy would cover expenses up to your policy limits.
Example: Business is booming for an insurance agent — so much so that he forgot to inform a client of the deadline to renew a personal auto insurance policy. A day after the policy expires, the client crashes into another car, causing significant damage. Since the policy is no longer active, the claim is denied, and the client decides to sue the agent to recoup expenses for the damages. The agent’s E&O insurance policy would cover the costs up to the policy limit.
Read your policy documents carefully so you understand what is and is not covered with E&O insurance for your business.
Next Insurance E&O policies provide coverage on a “claims-made basis.” It’s an old-school insurance industry term that basically means you are covered only for claims reported during the policy period — the first date your policy is active until your coverage ends.
E&O insurance provides important protections, but you’ll need to explore other policies to make sure you are protected from all the risks your business faces. We also offer coverage for business-related injuries, damage to another person’s property, business driving, and more.
General liability insurance covers the most common accidents that can cause non-employee injuries or damage to property that does not belong to you. For example, it can cover medical expenses after a slip-and-fall accident or repair/replacement costs if you or an employee damage a client’s property.
Workers’ comp insurance can cover medical expenses, lost wages, and employer liability if one of your employees is injured or becomes ill while working for your business. It is required for businesses with employees in most states.
Most states require a commercial auto insurance policy for business-owned vehicles. Even if it’s not required in your state, commercial auto provides protection for accidents that occur while driving for your business that are not often covered by a personal auto insurance policy.
E&O policies are designed to protect you from losses from your professional mistakes. Any damage to your business property and equipment or business interruption losses are not covered.
Report any E&O claims or potential claims as soon as possible. Since E&O insurance is a claims-made policy, you are only covered or claims reported during the policy period (the time your policy is active).
Errors and omissions insurance covers professional mistakes made by your employees or you, but it does not cover claims made against you as their employer. If a former employee sues you for discrimination or wrongful termination, E&O insurance cannot help you. You will likely need employment practices liability insurance.
Mistakes happen, and your E&O policy will cover many of them. However, if you or an employee purposely make work-related decisions that cause financial or physical damages, you might not have coverage. To avoid this, get legal advice from a professional to make sure you comply with rules and regulations wherever you do business.
If you intentionally advertise false information about your business, your product, or your credentials and you are sued, you won’t be able to fall back on your E&O insurance for help. Make sure that you are transparent and truthful with all public-facing information.
Next Insurance offers business insurance starting at $19 per month. The cost of your errors and omissions insurance monthly premium is determined by several factors involving your business operations, including:
Businesses with more exposure to risk typically pay higher rates for E&O insurance than low-risk businesses. If your business is part of a field where a mistake is considered major and costly, you will likely pay more than if a mistake can be easily fixed at less cost.
Having a history of insurance claims, canceling your policies early, and other related factors can lead to higher business insurance rates.
If you want more insurance coverage, you’ll have to pay more for higher coverage limits — the amount you or someone else would receive after a claim. When you get an instant quote online with Next Insurance, you will typically receive two or three options with our coverage recommendations.
Choose the option that works best for your coverage needs and your budget. You can save 10% on insurance costs by bundling your E&O coverage with another policy, such as general liability, workers’ compensation or commercial auto insurance.
When you are ready to purchase your policy you can choose an E&O insurance monthly premium or annual payment options.
There is no difference between errors and omissions insurance and professional liability insurance. They both offer the same coverage. The only difference is some industries commonly use the term “E&O insurance,” including tech professionals, real estate agents, and insurance agents.
Professions that call the coverage professional liability insurance include accountants, lawyers, architects and engineers, and other businesses.
Bottom line — whether you call it errors and omissions insurance or professional liability insurance, you can get customized coverage and proof of insurance for your business in a matter of minutes with Next Insurance.