Business mistakes are inevitable. But as worrisome as that might be, taking our errors and omissions insurance can rid you of that fear by offering financial coverage in cases of alleged negligence or errors.
Here, we’re uncovering all the ins and outs of E&O insurance coverage and even telling you how to get your hands on a policy to protect your business.
What Is Errors and Omissions Insurance Coverage?
Errors and omissions insurance, otherwise known as E&O insurance, gives you monetary protection if claims or lawsuits are made against you and your business for negligence. It covers you for errors and omissions made by you, your employees, or your company.
Depending on your industry, the policy might be called professional liability insurance, malpractice insurance (usually in the medical profession), or errors and omissions liability insurance.
Errors and Omissions Insurance Claims Examples
Now you know the definition of errors and omissions coverage, it’s a good idea to establish how it applies in real-world scenarios, such as the five you’ll find here:
Example One: Medical Negligence Claim
You run a fertility clinic downtown. One of your trusted sonographers does not detect a rare condition during Claire’s (a patient’s) ultrasound.
Claire names your clinic in the lawsuit suing for negligence. The legal expenses and monetary judgment totalling $250,000 are covered by your errors and omissions insurance. Without the policy, your fertility clinic would’ve paid the amount out of pocket and caused long-lasting financial damage.
Example Two: Libel and Defamation Claim
You own a magazine publishing company and sign off on a story calling your town’s celebrity “infamous” after they were involved in multiple scandals.
The celebrity sees the article and sues your magazine company for defamation and libel. They win the lawsuit, but luckily you have errors and omissions coverage the paid the settlement and legal fees equalling $33,000.
Example Three: Professional Negligence Claim
You are a realtor helping your client, Ben, buy his first home in Ontario. While walking around the property, Ben says he would purchase the dwelling if he could build an extension on the side of the property. You say that it’s perfectly plausible to build the extension and the purchase goes ahead.
A few months after Ben moves in, he successfully sues you for professional negligence after being denied the permit allowing him to build the extension. Your errors and omissions coverage pays the legal fees and compensation of $60,000.
Imagine being personally responsible for paying that amount of money? E&O policies really save the day in situations like these.
Example Four: Reputational Damage Claim
Your Ontario-based startup runs a platform tasked with automatically sending emails to your client’s databases. You updated your client’s preferences and sent an email to the wrong database, interrupting your client’s business operations.
Your client sues for reputational damage with their clients. Thankfully, your errors and omissions insurance covers the legal and compensatory fees totalling $100,000.
Example Five: Loss of Income Claim
You, a benefits consultant, were hired by a manufacturing company to figure out the long-term viability benefits due to their employee, Sarah. You base the calculations on Sarah’s previous year’s salary instead of her current income. Because of your mistake, she received a lower amount of disability benefits than expected.
Sarah sued the manufacturing firm for her income loss, which they paid. However, the firm then sues you because the miscalculation falls on your shoulders. Your errors and omissions policy reimburses their legal costs and compensatory damages awarded to Sarah.
What Does Errors and Omissions Insurance Cover?
Most errors and omissions insurance policies provide coverage for legal costs, compensatory fees, and damages in the cases below:
- A negligent act, an omission, or an error
- Misrepresentation
- Breach of confidentiality
- Breach of copyright
- Loss of documents
- Inaccurate advice
- Delays
- Failure to provide a service or offer advice as promised
- Libel and slander
- Failure to deliver due to a third party
- Intellectual property infringement
What Doesn’t Errors and Omissions Insurance Cover?
Errors and omissions insurance normally doesn’t provide coverage for the following:
- Violation of securities acts
- Criminal acts
- Fraudulent acts
- Dishonest employees
- Cost guarantees or price estimates
- Incorrect estimates of economic returns
While E&O coverage won’t protect you in these areas, other types of insurance do provide that coverage. We’ll look at some additional insurance policies you should consider later.
Who Needs Errors and Omissions Insurance Coverage?
Depending on your profession, errors and omissions could be called professional liability or medical malpractice insurance instead. Plus, some occupations require an E&O policy to legally practice. Therefore, it’s highly likely you need a policy.
As a general rule, you should take out errors and omissions insurance coverage if the following apply:
- You develop or offer produces or devices.
- You offer a service or give advice for a fee.
To give you a better understanding of the type of professionals requiring E&O coverage, take a look at the list below:
- Photographers
- Operations, marketing, and organizational consultants
- Career consultants
- Project managers
- Strategic consultants
- Human resources consultants
- Software developers
- Web and UX designers
- Management and recruitment consultants
- IT consultants
- Copywriters
- Graphic designers
- Interior designers
- Health professionals
- Social service professionals
- Forensic experts
- Finance professionals
- Legal professionals
- New media professionals
- Engineers
How Do Errors and Omissions Insurance Policies Work?
Suppose one of your clients or other third parties sues you for negligence, failure to provide professional advice or service as promised, or misconduct. In that case, you make a claim with your E&O insurer, and they’ll cover the legal and compensatory costs.
However, there are several important caveats to remember when claiming. Find the top three below:
- Report immediately — Any situation that may result in legal action against your business must be reported as soon as possible. If you fail to report the incident, your errors and omissions insurance provider may not cover the claim.
- Limits apply to the whole term — The policy limit you purchase applies to the entire policy term and not every individual claim. For example, if your limit is $1 million, and your first claim uses $400,000, your limit is only $600,000 for your next claim during the same term.
- Deductibles — Every covered claim you make requires you to pay a deductible. The specific amount changes based on your business’ revenue.
How Much Does Errors and Omissions Insurance Coverage Cost?
For an errors and omissions insurance policy with the lowest limit ($100,000), you can expect to spend roughly $250 yearly. But, a myriad of factors plays a role in your coverage’s premium price, including:
- Your business location — Some locations are considered more high risk than others due to a larger population, bigger crime rate, and higher number of lawsuits.
- The size of your business — Businesses with more employees often pay more for errors and omissions insurance than smaller companies. The risk of making mistakes and experiencing lawsuits rises the more employees you have; therefore, you pay a higher coverage premium.
- Your industry — Insurance providers see some industries as riskier than others. Generally speaking, steel, commercial construction, oil, medical, electricity, and roofing industries are the riskiest. After all, a contractor fixing a warehouse roof has a higher chance of finding themselves in a negligence lawsuit than somebody producing advertisement copy from home.
- The coverage limit — The higher the coverage limit, the higher your premium cost. Errors and omissions policies come with five standard coverage limits: $100,000, $250,000, $500,000, $1 million, and $2 million. However, some providers offer higher limits for larger companies if required. Be sensible when setting your coverage limits; you don’t want to take out a lower amount just because it’s cheaper.
- Your deductible — The more money you’re willing to pay before your insurer covers the rest, the lower your premium price. Set a deductible price you can comfortably afford, so you don’t accidentally put your business in hot water if a claim arises.
- The presence of riders or extra clauses — No two errors and omissions insurance policies were made equal. Depending on your business, you might need extra endorsements that ramp up the price.
- Your insurance claims history — Insurers skyrocket premiums if your company has experienced lawsuits in the past. Some providers may even deny your application if you’ve recently made a claim. But there’s no need to worry about that with us at LiabilityCover. We connect you with the perfect provider for you and your company.
- Your services — The type of services you provide directly influences your E&O premium price because some are riskier than others. For example, a patent paralegal pays more than an SEO and social media manager because there’s more at stake following the former’s advice.
- Your experience and training — If you have a lot of industry experience, you’re considered less of a risk. Likewise, if your employees are consistently bettering themselves and keeping up with best practices, you can benefit from lower premiums as you’ve reduced the likelihood of making mistakes.
- Your business’ revenue — A higher income suggests more customers. Not to mention that with more money comes more risk.
- Contracts — Contract breaches are a common reason behind errors and omissions lawsuits. You decrease your risk by ensuring you write all contract agreements in a non-ambiguous way.
When you use our secure online quote form, we ask you various questions about your business, so we can be as accurate as possible when providing quotes from our list of licensed brokers and agents. It’s the best way to find out exactly how much your company needs to anticipate spending.
How Much Errors and Omissions Insurance Coverage Do You Need?
Your profession typically dictates how much errors and omissions insurance coverage you need. The governing bodies and agencies for professionals like architects, attorneys, mediators, podiatrists, and interior designers set minimum E&O coverage guidelines from all companies in the various industries.
To find out how much you need, contact your professional governing organization that produces laws associated with your industry. If you don’t work in a profession with such an agency, the insurers we connect you with have extensive experience giving insurance to those in your industry, so they’ll let you know the best coverage limit for you.
How to Get Errors and Omissions Insurance Coverage
Wading through quotes on sub-par comparison websites probably isn’t your idea of spending your time wisely. After all, you’ve got a business to run!
That’s why we’ve provided an easy, four-step process that allows you to do what you do best and us to get you the correct coverage. Here’s how it works:
- Submit your request online using our form.
- We review your insurance needs.
- We connect you with a licensed insurance agency or broker with specialist experience in your industry and/or profession.
- The broker or agent contacts you to help you through the application process, allowing you to get the errors and omissions insurance coverage you need to keep your business safe.
Is Errors and Omissions Insurance Coverage On Its Own Enough?
Commercial General Liability Insurance
Commercial general liability (or CGL) insurance works wonderfully in tandem with errors and omissions coverage. It provides financial protection (legal defence costs, compensatory damages, etc.) for claims alleging third-party bodily injury and property damage due to negligence or unforeseen incidents.
You should acquire a commercial general liability insurance policy if you:
- visit your clients’ homes or offices.
- have employees who operate off-site.
- have an office space.
- have clients who visit you at home.
For a small- to medium-sized business looking for CGL coverage with a $2 million limit, you’ll pay roughly $450 per year. Combine that with your basic, low-limit errors and omissions policy of $250 yearly, and you’re paying $700 a year for highly valuable insurance.
Bear in mind that your premium price for commercial general liability insurance fluctuates depending on factors, such as:
- The number of employees — The more people working for you, the more likely they are to find themselves amidst a lawsuit.
- Your experience in the industry — With experience comes less chance of making costly errors and lapses in judgment.
- Your insurance claims history — A long list of insurance claims behind you indicates you’re highly likely to continue claiming. Therefore, you should expect greater premiums from your insurer.
- Your annual and projected revenue — A business with a lot of revenue has more at stake during a lawsuit than those with lower revenues, increasing the price of the premium. Clients often sue for more money when they know your company’s financial climate can withstand the hit.
Commercial Property Insurance
While commercial general liability protects you from third-party claims, commercial property insurance provides financial coverage for damage or loss of your property and its contents.
You should take out business property insurance if one or more of the following applies:
- You and/or your employees conduct business off-site.
- You own or rent a property for commercial purposes.
- You own or rent business equipment or inventory.
- You have an office or other type of commercial space.
- You use machinery, hardware, or computers for work reasons.
- You use portable devices like smartphones, laptops, and tablets for work purposes.
Insurers usually include at least one type of deductible in their commercial property insurance coverages to help keep costs on both sides low. More often than not, you’ll find one or more of these common deductible types:
- Waiting periods — This is the length of time before the policy kicks in.
- Flat deductibles — It’s a specific amount applied to every loss. It’s the most regularly seen deductible type in commercial property policies.
- Percentage deductibles — This type is normally used in disastrous events to cover a portion of the property value or the limit of the policy.
Commercial Auto Insurance
Sometimes referred to as commercial vehicle insurance or business auto insurance, commercial auto insurance provides coverage for automobiles used for work reasons. It applies to everything from vans to cars to trailers to trucks. Obtaining a policy is necessary for any vehicle you utilize to transport tools, materials, packaged goods, people, or equipment.
The specific coverages are very similar to personal auto insurances, including the riders (i.e., optional coverages). Typically, you can benefit from discounts on your commercial vehicle insurance if you have a clean driving record and take out another business policy with the same provider.
Cyber Liability Insurance
Containment and repair costs can be horrifyingly expensive following a business system hack or breach. If you store customer data in the cloud or digital-based systems or use any point-of-sale system, you should thoroughly consider acquiring coverage.
In general, cyber liability insurance includes coverage for damages and legal costs associated with:
- Incident response — The policy provides access to an anytime cyber incident response hotline. Plus, it gives you the resources to hire the response team to help you coordinate your action plan after a cyber event.
- System damage and restoration — Coverage for repairing and restoring software systems damaged during the cyber attack.
- System business interruption — Coverage for any losses you experience during a system outage caused by a cyber attack.
- Legal, forensic, and breach management — Notification fees, crisis management services, credit monitoring, and advice are all covered under the policy.
Why Choose LiabilityCover?
At LiabilityCover, we specialize in connecting professionals like you with a licensed insurer or agent with years of experience providing insurance to others in your industry.
We pride ourselves on our seamless process that lets you get the insurance you need in record time. We understand the world of E&O coverage can be murky, so we strive to clear it and ensure it’s as easy as possible for you to traverse. How do we do this? By doing all the hard work for you!
If you’re ready to solve your business insurance needs, you’ve come to the right place.
Frequently Asked Questions
What Is The Difference Between Errors and Omissions Insurance Coverage and Commercial General Liability Insurance Coverage?
CGL (commercial general liability) insurance covers third-party bodily injury and property damage. Conversely, errors and omissions policies cover lawsuits alleging misconduct, neglect, or failure to deliver services as promised. As we mentioned earlier, it’s worth having both policies to build a comprehensive protection package.
What Is The Difference Between Errors and Omissions Insurance Coverage and Professional Liability Insurance Coverage?
Insurers use the names errors and omissions insurance and professional liability insurance interchangeably. Both terms refer to the same policy type and offer coverage for errors and omissions in professional services. But, depending on your industry, it may be referred to as malpractice insurance.
What’s The Difference Between Directors and Officers Insurance Coverage and Errors and Omissions Insurance Coverage?
Directors and officers insurance (or D;O) only applies to officers and directors on a company’s board. Errors and omissions insurance applies to any businessperson providing services.
With that said, both offer coverage for errors and omissions caused by negligence. It’s simply the group of people it provides that coverage to that differs.
Do You Need Errors and Omissions Insurance Coverage If You Work Remotely?
No matter where you work, having errors and omissions coverage protects you if your client sues for negligence. Settlement fees and legal charges can financially destroy your business, regardless of its size. Therefore, having the coverage helps you survive — and even thrive — following a lawsuit.
How Can You Prevent Errors and Omissions Claims?
While mistakes are bound to happen at one point, you can limit the likelihood by adhering to best commerce practices. Keep the following tips in mind:
- Regularly communicate — Talk to your clients regularly. Ensure you and your employees set guidelines and expectations. That way, everybody is on the same page and less prone to miscommunication.
- Use realistic timeframes — If you can’t stick to a deadline, don’t set it. You shouldn’t rush to complete work. Instead, promise timelines you can realistically stick to, so everybody is happy with the result.
- Ensure your review process is detailed — Schedule time to review your documentation and work before you send it to your clients. Not only does it lessen the likelihood of claims, but it also decreases the time you spend on a project in the long run.
- Have an organized system — Every business needs organization. Your working order, document storage system, and project management programs should be structured to prevent mistakes.
