Errors & Omissions Coverage
If your business delivers products or services based on specialized knowledge, or its employees act in a consulting or advisory role, applying specialized knowledge or giving professional advice, then you may be exposed to liabilities that are specifically excluded from a Commercial General Liability (CGL) policy. You need E&O to fill in the gaps.
What is Errors & Omissions (E&O) Insurance?
Errors & Omissions (E&O) insurance provides coverage for financial losses related to negligent acts and mistakes made by a business or its employees while delivering professional services. This typically means that they are making use of a certain expertise or specialized knowledge. If a client or third party alleges negligence or some error, legal costs are also covered under most E&O policies.
Generally, E&O covers a lot of the liabilities that are specifically excluded under a professional services exclusion in a typical general liability (CGL) policy.
E&O coverage is also sometimes referred to as Professional Liability Insurance and, as it applies to medical professionals, Medical Malpractice Insurance.
Who Needs Errors and Omissions Insurance?
The fact is that any business that offers expert advice, or in which experts use their judgment either as their primary service or as part of a larger product and service offering, needs Errors & Omissions (E&O) coverage. This includes the following:
- Accountants and Bookkeepers
- Architects and Building Designers
- Consultants and Engineers
- Doctors and Other Health Professionals
- Financial Advisors/Planners
- Lawyers and Other Legal or Paralegal Professionals
- Real Estate Agents and Mortgage Brokers
- Insurance Agents and Brokers
- Technology companies and software developers
- Private Investigators
- Property Managers
- Travel Agents
Note that this is not by any means an exhaustive list, and there are circumstances under which any business might require E&O insurance, if it provides professional services. If your business is one in which you require a license or certification, you likely need E&O, but even if it is not, as is the case with a wide variety of technical or IT roles, you may need E&O regardless, if you provide expert advice to clients.
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An Example of E&O Protection
Think about it – you are working as a sales consultant, and you advise your client to shut down her website so that she only focuses on phone sales. Your client is hesitant, but you convince her that the rewards will be huge, and there is no way this plan can fail. Your client’s sales steadily drop over the next year, and she sues you because your advice caused her business to fail. You do not want this client to come after your assets, or have to pay out of pocket for legal fees. Errors and Omissions insurance is valuable in situations like these – which are much more common than you might think.
An Ounce of Prevention…
Errors and Omissions insurance does not just protect you if you do make an error or are negligent, but also if you have to defend that your actions were valid. As unfortunate as it is, clients do not always part on the best of terms. If they are upset, they may decide to bring a lawsuit against you. Even if you aren’t found liable, the sheer expense of defense fees, etc. can be monumental. For small businesses, these losses can prove to be too significant to recover from.
At Mitchell & Whale, our brokers have worked with a number of different clients requiring Errors and Omissions insurance. We work with you to find you a policy that is tailored to your business. Whether you are a one person operation or have bigger needs, we can find the right policy for you. If your Ontario business is in Whitby, Toronto, Sudbury or beyond, call us today for a quote!
If your business carries E&O coverage, an E&O claim would typically begin the moment a client or third party alleges that your business or its employees acted negligently, gave bad advice, failed to deliver on an agreed to deadline, or made a mistake that resulted in a financial loss.
The policy would usually cover legal costs, and in fact, the insurance company might use its own lawyers to help with defending your business from the accusations, in addition to paying for your legal counsel.
Ultimately, if you lose in court or agree to an out-of-court settlement, your E&O policy would cover any award or settlement.
E&O insurance typically covers professional services business for mistakes, bad advice, missed deadlines and failure to deliver goods and services as agreed, if those actions result in a financial loss for a client or third party.
An E&O policy usually covers legal costs in addition to any court award or settlement.
Typically, E&O policies have a policy limit somewhere between $1 and $5 million. How much your business needs depends on a number of factors, including:
– Your revenues
– Your clients’ revenues
– The kind of professional services your business provides, how likely they are to lead to a claim, and how large that claim is likely to be
There are certain businesses like architecture, building design, financial advisors, and certain medical professionals that have the potential for larger claims. Your broker will ask you a series of questions about your business and advise you as to what an appropriate limit is for you.
$1 million doesn’t go as far as it used to, so as a general guideline, we would typically recommend that all professional businesses maintain at least $2 million of E&O insurance.
The cost of E&O insurance varies. Some small businesses can pay as little as $30/month for $100,000 in E&O coverage, whereas larger businesses in higher risk industries can pay as much as $1,000/month for $5 million in coverage.
One of the key factors that insurers will consider when setting your premium is what can go wrong if there is a failure in the delivery of your product or service. For example, if your company develops software which is installed in air traffic control towers to manage air traffic, the potential consequences of failure are extremely high.
In addition, and as with most types of insurance, your business’ revenues and number of clients or contracts will also heavily influence the premium you are charged. Smaller businesses, with lower revenues and fewer clients are likely to pay less.
Commercial general liability (CGL) insurance is standard liability coverage that is required by all businesses. It’s primary purpose is to defend your business against claims arising out of bodily injury or property damage to a third party.
E&O insurance, on the other hand, covers your professional services business if it is found to be responsible for losses or injuries stemming from negligence or errors in professional judgment.
So, for example, if your architectural firm makes a mistake in a floor plan that leads to cost overruns on a project, that would be an E&O claim, because it is a mistake in a professional service. On the other hand, if an employee of the same firm is doing work at a client’s home and accidentally leaves the water running, leading to water damage, that would be a CGL claim.
Any insurance company that sells commercial insurance (insurance for businesses) is likely to sell Errors & Omissions (E&O) coverage, usually as part of a larger package that includes Commercial General Liability (CGL) and other coverages, possibly including commercial property (for owned buildings) and commercial auto insurance.
The best way to find the right package of insurance for your business at the best possible price is to talk to a licensed insurance broker that works with at least a dozen different commercial (business) insurers. Remember that unlike auto insurance, business insurance is not standard, so you’ll want your broker to walk you through what’s the same and what’s different from one insurer to the next. Don’t just go for the lowest price, because you may be getting much less coverage.
The answer to this question could be very broad, depending on what your business does. However, as Amazon would put it, businesses such as yours would typically also consider:
– Business contents insurance – covering office furniture, electronic data processing devices and any business related equipment.
– Commercial General Liability (CGL) insurance – as detailed above, protecting your business against claims for bodily injury or property damage caused to a third party.
– Cyber insurance – professional organizations will typically store private client information and also rely on their systems for day-to-day operations. Cyber insurance will cover your liabilities to third parties if there is a breach of your data and the costs of notifying affected people. It can also cover the costs of damage to your systems, data and networks caused by cyber crime, e.g. ransomware, viruses, phishing attacks etc. Finally, the right cyber coverage can protect you from lost revenues if a hack leads to downtime and even lost revenues due to reputational damage.
– Legal expense insurance – typically provides 24hr legal advice on all matters, and will also cover legal costs when you need to bring a case against another person or company, or defend your business for claims against you that wouldn’t typically be included in your CGL or E&O policies, e.g. contractual disputes.
– Employee liability insurance and Employee practices liability insurance – will cover liabilities to employees who are injured in the course of their work (employee liability), or cover the cost of defence and damages from employees bringing a case against your business (e.g. a wrongful dismissal case).