05/ 03/ 2004
by Jeffrey Moses
Also called "professional liability" or "malpractice" insurance, errors and omissions (E & O) insurance should be considered by companies and individuals who work with clients in the areas of consultation, service provision, design or sales.
In essence, E & O insurance protects you against claims that you did something incorrectly for a client or did not do something that you normally would be expected to do in the course of business events.
E & O coverage provides protection for claims or lawsuits for mistakes or omissions that result in financial losses for a client. This insurance is different from all types of coverage protecting against damage to property, physical injury and so on.
E & O insurance helps protect you in two vital areas:
1. Attorney fees, which in many instances can be as costly or more costly than settlements that might result. Even if you are hit with a most unreasonable lawsuits, you still might have to pay for your legal defense.
2. The amount of any settlement you would pay if found at fault.
Businesses that should consider E & O insurance include, among others:
- Real estate companies
- Consultants
- Advertising specialists of all types, including web and graphic design
- Appraisers
- Service providers such as ISPs, home inspection, janitorial, building contractors, etc.
- Financial services, ranging from mortgage brokering to financial consulting
- Professional services, including attorneys, dentists, doctors and chiropractors
The cost of E & O insurance varies widely, according to geographic location and industry. There is great competition between providers, however, so it's easy to receive cost comparisons and detailed policy information.
E & O insurance contracts contain specific information that protects you. Included should be:
- Dollar amount per occurrence of liability (limits of liability)
- Statement of deductible amount per occurrence for liability (dollar amount of claims) and deductible amount for defense costs
- A section stating something to the effect of: "This policy applies to errors, omissions or negligent acts in the course of providing or failing to provide professional services."
- A section stating the services you provide
- The retroactive date for claims
Most attorneys would agree that one of the best ways to limit the amount of claims--and your liability in general--is to design a contract with your client that expressly defines each of your responsibilities. Consult with your attorney and insurance agent in this regard.
