When mistakes lead to financial losses, lawsuits may follow. E&O insurance can protect your bottom line and give your clients peace of mind.
If you make a mistake that costs a client money, will you have coverage for any resulting lawsuits? Errors and omissions (E&O) insurance, also called professional liability insurance, provides coverage for lawsuits stemming from alleged errors or omissions that result in financial loss.
This is important coverage for any company that delivers services that could negatively impact the client, including tech companies, accountants, attorneys, and broker-dealers. Depending on your industry, you may need specialized E&O insurance. For instance, technology companies may need tech E&O and attorneys may need lawyers professional liability insurance.
E&O Risks for Public Companies
As your company grows, you’ll have more clients counting on you to deliver excellent services. One misstep may result in a lawsuit that threatens your reputation and your bottom line. Even if the lawsuit is decided in your favor, the defense costs may be significant.
Lawsuits may stem from a number of allegations, such as:
- Inaccurate advice
- Missed deadlines
- Breach of contract
- Substandard services
- Professional negligence
How Errors & Omissions Coverage Can Help Protect Your Business
E&O insurance will protect your business from the financial impact of lawsuits alleging professional negligence. If you face an E&O lawsuit, your policy will provide coverage for your defense costs and settlements or awards.
With E&O insurance, you:
- Earn trust. Many clients feel more comfortable knowing that the companies they work with have E&O insurance. They may even require proof of coverage before they’ll work with your company.
- Take on bigger clients. Larger clients also involve a greater financial risk. E&O insurance lets you take on bigger clients with confidence.
- Protect your reputation. If you face a covered lawsuit, your E&O insurance will help with your defense costs.
Key E&O Policy Features
E&O insurance provides:
- Claims-made coverage. E&O insurance typically provides coverage on a claims-made basis, meaning it covers claims if they occur while the policy is in force, as long as the alleged event does not predate the retroactive date.
- Aggregate and occurrence limits. In the event of a covered lawsuit, E&O insurance will cover legal fees associated with your defense as well as settlement costs, judgements, or jury awards, up to your limits. Make sure you select aggregate and occurrence coverage limits that are sufficient for your exposures.
- Customizable Deductibles. E&O insurance typically has a deductible: the amount you will be responsible for in the event of a claim. Some policies have a deductible that only applies to judgment or settlements, while other policies have a deductible that also applies to defense costs.
Frequently Asked Questions
What doesn’t E&O insurance cover?
While E&O insurance provides important protection, it doesn’t cover everything. First of all, it only covers lawsuits involving allegations of professional negligence leading to financial loss. It does not cover other types of lawsuits, such as property damage, bodily injury, worker injury, or employment practices. You can secure other types of insurance to cover these risks. Standard E&O policies also exclude intentional or criminal acts. Since details vary, you should check your policy for complete information on what it covers.
Do I need E&O insurance if I already have general liability insurance?
Yes, E&O insurance is still recommended because it provides coverage for different types of lawsuits. Commercial general liability insurance covers lawsuits involving property damage and bodily injury, but it does not provide coverage for professional negligence.
What is tech E&O?
Tech E&O, or technology E&O, provides professional liability coverage specifically designed for technology companies. For example, if your SaaS services do not perform as expected or the software you provide has bugs that lead to financial losses for your clients, your tech E&O policy will provide coverage.
Who needs E&O insurance?
E&O insurance provides valuable coverage for any company that provides professional services. This includes companies in various industries, including technology, accounting, design, marketing, insurance, law, real estate, and consultancy. If your clients could potentially face financial losses due to errors, omissions, or substandard work on your part, you should consider coverage.
When should I buy E&O insurance?
If you are providing professional services, it’s important to have E&O insurance in place. This is true regardless of the size of your company and whether you are operating as a public or private company.
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