Any business, no matter how successful and well-managed, can potentially make errors in delivering its services, or even fail to deliver its services, for a number of reasons, many of them unforeseeable and attributable to human error. Such basic mistakes as an error when adding up figures or failure to pay an invoice on time can have far-reaching, sometimes catastrophic consequences in terms of supplying the services you have contracted to provide. When this happens, however good a relationship you have with your clients they will, naturally, expect to be compensated with either replacement services or a return of the fees and charges they have paid, possibly with additional compensation for their time and inconvenience on top. This is where Errors and Omissions (E&O) insurance can help you and, in extreme cases, perhaps save your business by providing professional liability coverage.
Errors and Omissions insurance, otherwise known as Professional Liability insurance, protects your business against claims of negligence, misrepresentation or mistake, as well as document or paperwork errors.
Errors and Omissions insurance provides coverage against a range of legal actions, including: negligence (for example where it is claimed that you have failed to supply goods or services in a timely or contracted manner); misrepresentation (for example where it is claimed that you have not provided an honest description of the goods or services you contracted to supply); violations of good faith or fair dealing (for example where it is claimed that you have acted in bad faith, e.g., taking money for a service that you knew you could not supply); and inaccurate advice (for example advising a client to take a course of action which resulted in them suffering financial or reputational loss).
If you are facing action from the client on any of the charges listed above, having an Errors and Omissions policy should cover most if not all of your legal expenses. This will include the fees levied by your counsel, expenses incurred in commissioning reports or testimony from experts in the field, fees for administration in dealing with the paperwork involved, fees payable for bringing a case to court, any sums you have to pay in order to come to an agreed settlement, and any fine or penalty that is payable should you be found liable by the courts.
It should be noted that your Errors and Omissions insurance will not protect you if you set out purposely to mislead clients or employees or act in a wrongful or illegal manner, or if you deliberately act in a way that you know to be wrong. For example, if one of your staff forgets to send an order to a subcontractor, and as a result you are unable to supply services in a timely manner as per contract, that may be covered by Errors and Omissions insurance. If, however, you find that you do not have the cash flow to order the goods from your subcontractor and so deliberately do not do so, this does not constitute an error or omission and you will not be covered if your client takes action. The same applies when dealing with your employees: if a computer error means that your employees are not paid on time, that’s an error or omission; if you deliberately withhold contracted payments, that isn’t.
Errors and Omissions insurance is provided by many reputable companies to most small businesses that offer services to their clients in return for payment. However, insurers will scrutinize your business to make sure that you do not represent an unwarrantedly high risk. Some industries are specifically excluded by companies due to the high risk nature of their business, and insurers may refuse to offer you coverage if you have previously made a high number of claims against Errors and Omissions insurance provided by other companies.
If you provide services or guidance to paying customers as part of your business, you should think about getting Errors and Omissions insurance. This is especially the case if you provide extremely technical or complicated services where errors may be more likely to occur, or if errors or omissions from your company could be highly financially damaging for clients. Amongst the types of business that should consider Errors and Omissions insurance are architects, consultants, businesses involved in financial and account services, IT professionals, insurers, non-profit companies, and realtors.
