Errors and Omissions insurance* can protect professional service providers from potentially devastating financial damages resulting from alleged negligence or error in the delivery of your services. It may have other names, for example for medical practitioners it may be referred to as Malpractice insurance, or in other sectors it is sometimes referred to as Professional Liability insurance. The basic principle of covering for any errors/omissions made remains the same.
Generally an Errors and Omissions policy will cover any judgement or settlement awarded against you and cover your legal costs. This last is particularly important for small companies, because even if you successfully defend a lawsuit, you may be left with very substantial legal bills.
There are a number of professions in which it is obvious that Errors and Omissions insurance is essential, for example architects, medical practitioners, lawyers and so on. Nevertheless, there are many other businesses where errors or omissions have the potential to give rise to significant lawsuits and and so this type of insurance should be considered, for example event planners, advertisers, webhosts, and many more. Essentially, anyone who provides services to clients in a commercial endeavour may be exposed to errors and omissions lawsuits. Nobody can guarantee that their business will never make a mistake or have to deal with dissatisfied clients, so every service sector needs protection.
There are countless scenarios that can be imagined in which Errors and Omissions insurance would be needed to cover mistakes. A simple error in writing an address label could potentially lead to lawsuits amounting to millions of dollars. What if an event planner forgets to book a caterer or books them for the wrong date, if it is a promotional event for a company that makes the company look incompetent and they may well seek compensation for the reputational damage caused. In either of these examples, general liability insurance would not cover the costs of defending any action or paying any settlement.
Obviously, insurance cannot be purchased to cover errors and omissions once someone has launched a lawsuit against you, so you need to make sure that you have this type of insurance as part of your basket of professional insurance coverage. Even if you genuinely believe you will never make errors, many professional contracts demand proof of such insurance, and it’s also a good way of showing your clients that you are thinking of them and making sure they are covered for losses if anything goes wrong.
One thing to make sure of with Errors and Omissions insurance is that policy you choose actually suits your business and the work you do. Obviously wedding planners will be exposed to different sorts of risks compared to doctors, for example. You will need to go through your policy very carefully, preferably with the help of an expert, to ensure that every eventuality is covered.
Although, as noted above, you can’t buy insurance to cover a claim that has already been made against you, Errors and Omissions policies do have retroactive dates, i.e., you can be covered against action brought against you for errors prior to the date of purchasing the insurance policy. Obviously the earlier this retroactive date is set, the more you’re covered against historic claims.
The levels of coverage offered by different policies may be extremely varied: many will have limits to the liability covered, exclude punitive damages, or only kick in after a certain level of damages is reached, e.g., you might be responsible for any damages under $5000.
Errors and Omissions insurance can vary considerably in price, dependent on the type of business you run, your region, any previous insurance claims, and so on. Check that the insurer you are considering is suitable for your specific business, not just your sector in general, e.g., an events insurer who mainly covers live music events may not necessarily offer you the best deal or the best contract if your company mainly works with wedding events.
The level of detail required by different insurers will also vary greatly. Some insurers simply require you to fill out a form, others will want to know exactly how are you mitigate risk in your company, looking at how you train your employees, your recordkeeping procedures, and so on.
As always, of course, although you should have Errors and Omissions insurance, the best way of minimising your financial and reputational risk is to ensure that you never need to use it; always make sure that you have crystal clear agreements with your clients as to what you are contracted to provide and when, keep talking to them and if there are any problems let them know immediately how you propose to deal with them, and always keep a paper trail of what you have done and when.
*As with any insurance, coverage will be subject to the terms, conditions and exclusions contained in the policy wording. The information contained in this article is general only. Coverage for claims on the policy will be determined by the insurer, not BizInsure, and will depend on the specific facts and circumstances involved.
