Business liability insurance protects companies and professionals against common risks like property damage and bodily injury, but it may not cover you if you are held liable for other types of damages due to negligence or inadequate services.
But what is errors & omissions (E&O) insurance and why do businesses need it?
E&O insurance is a type of professional liability insurance that can help protect you against potential damages not covered by traditional business liability insurance policies. It can cover expenses for you and your business which arise in circumstances such as lawsuits from a client or customer because of errors, omissions, or negligent acts when providing services.
Here’s a closer look at what E&O insurance is, how it works, and what it covers.
What is Errors & Omissions Insurance?
Errors and omissions insurance, also known as professional liability insurance, helps protect professionals that are sued by clients; claiming you made a mistake that caused financial damages when providing their professional services.
This type of insurance is particularly beneficial for professionals that provide expert advice to clients, including lawyers, financial advisors, consultants, etc.
How does it work?
E&O insurance applies when your expert advice or professional services results cause a client to suffer significant financial damages.
For example, if a financial advisor gives a client investment advice and the client loses money in the investment, they may choose to sue the financial advisor for damages. Even if the advisor made the client aware of the risks and is not held liable, court costs and legal fees can still add up very quickly. In this case, E&O insurance may cover all legal expenses, whether or not the advisor is liable.
What Does it Cover?
Errors and omissions insurance helps protect you or your business against claims of:
- Negligent acts
- Poor or inaccurate advice
- Violation of good faith
- Errors and omissions
- Misrepresentation of services
If a client or customer sues your business for one of these reasons, E&O insurance can help cover court costs, lawyer fees, settlements and judgments, and any additional legal expenses. For E&O insurance to cover these expenses, though, the claim must be filed within your policy period, and the incident must not have occurred before your retroactive date.
What’s not covered?
Errors and omissions insurance will not cover any claims made after your insurance policy’s extended reporting period or claims arising from incidents that occurred before your retroactive date.
E&O insurance will also not cover certain types of liability claims, including:
- Bodily injury
- Property damage
- Employee injury
- Purposeful wrongdoing
- Illegal acts
Business liability, workers’ compensation, and other types of business insurance policies exist to help businesses with claims like these.
Who Needs E&O Insurance?
Errors and omissions insurance is suitable for nearly any type of business that provides professional services to clients and customers.
This may include:
- Financial advisors
- Insurance agents
- Marketing firms
If you provide advice or services to customers, E&O insurance can help protect you if you are sued by a client claiming negligence, errors, or omissions. Without this type of insurance policy, businesses may have to pay for court costs, lawyer fees, and settlements out-of-pocket—which can range from thousands to millions of dollars in some cases.
E&O Insurance Cost
E&O insurance rates vary depending on several important factors, including:
- Industry: Businesses in high-risk industries, like finance, may face higher E&O insurance rates.
- Claims history: If your business has been the subject of multiple liability claims, you may have to pay more for E&O insurance.
- Location: Rates may be higher for businesses in larger cities.
- Coverage limit: Policies with higher coverage limits typically have higher premiums.
- Misrepresentation of services
- Number of employees: Companies with many employees may face higher rates.
Your errors and omissions insurance policy will carry premiums specific to your company industry.
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Errors and omissions insurance is an essential type of liability insurance for businesses that provide professional services or advice to clients. Even if you’re not at fault, lawsuits filed against you or your company can lead to thousands of dollars in legal expenses. Without E&O insurance, businesses may have to pay for these expenses out-of-pocket.
At KSA Insurance, we specialize in helping business owners and professionals in South Carolina and across the southeastern United States find comprehensive insurance policies to protect them against financial damages.
Contact us today to get a custom quote and learn more about errors and omissions insurance.