Businesses need to have the proper insurance coverages in place to protect themselves against lawsuits that could result in significant financial losses. Errors and omissions (E&O) insurance and directors and officers (D&O) insurance both offer essential coverage that can help offset the financial damages that may result from a lawsuit against your business. But what exactly is the difference between E&O and D&O insurance?
Both of these policies protect businesses against lawsuits that result from allegations of negligence, but there are a few key differences between these policies that business owners should understand to ensure they have the coverage they need to protect themselves.
Here’s what you need to know about the difference between E&O and D&O insurance.
What is D&O Insurance?
Directors and officers insurance offers coverage to protect directors and officers at nonprofit and for-profit organizations against lawsuits that claim the director or officer failed to perform their duties. It can help cover court fees, settlement costs, defense costs, and other expenses that the director or business may incur while defending against the lawsuit.
D&O insurance primarily offers coverage for the individual being sued but can also reimburse businesses when they grant indemnification and pay for defense costs.
D&O insurance typically covers claims related to failure to follow company by-laws, defamation by a board member, reporting errors, employment malpractice, and breaches of fiduciary duty.
Essentially, D&O insurance serves to protect high-level decision-makers when someone claims that they have acted negligently.
What is E&O Insurance?
Errors and omissions insurance is similar to D&O insurance in that it protects businesses and employees against claims of negligence or inadequate work.
E&O insurance is a type of liability insurance that can cover the full cost of any claims made against your business or workers resulting from inadequate services. This includes any court costs and settlements up to the coverage limit specified in the policy. E&O insurance is generally required for any business that provides professional advice or services.
A common example would be a customer suing a company after making a poor investment based on the advice of their broker or investment firm. In a case like this, E&O insurance can cover legal fees and court settlements on behalf of the party being sued.
D&O Insurance vs. E&O Insurance: Key Differences
The primary difference between D&O insurance and E&O insurance is who exactly is covered by each policy.
D&O insurance specifically covers high-level decision-makers, including directors, officers, managers, and board members when a claimant sues them for failing to perform their duties.
E&O insurance, on the other hand, protects the business and all workers against claims that their professional advice or services resulted in damages.
While both policies sound similar on paper, they typically do not overlap and offer distinct coverage for different people within a business.
For example, a company executive defaming a rival company executive publicly would become a D&O claim. On the other hand, a realtor failing to disclose important information about a property to a potential buyer would fall under the scope of E&O insurance.
To ensure all business members are covered against such claims, many businesses choose to purchase both D&O and E&O insurance policies.
What About EPL Insurance?
While D&O insurance and E&O insurance protect businesses against claims made by customers and clients, many businesses also need employment practices liability (EPL) insurance to protect them against claims made by employees alleging:
- Wrongful termination
- Failure to promote
- Invasion of privacy
- And other employment-related issues
When purchased in conjunction with D&O and E&O insurance, EPL insurance can protect businesses against some of the most common claims they may face when conducting business. Each of these three coverages offers protection against a variety of risks that can result in significant financial losses for small and large businesses.
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Directors and officers insurance and errors and omissions insurance help protect businesses, their directors, and their employees against common claims made against them by customers and clients. Without these essential coverages, businesses are susceptible to significant financial losses resulting from court fees, settlements, and other expenses.
At KSA Insurance, we work with businesses in South Carolina and across the southeastern United States to help them find affordable D&O and E&O insurance policies to ensure they are protected against claims of negligence and inadequate services.
Contact us today to request a quote and learn more about the difference between E&O and D&O insurance.