Do you make errors? We all do. And if you operate a small business that provides a service, chances are you need errors and omissions (E&O) insurance, which is a type of professional liability insurance. Let’s delve a bit deeper to see how this specialized insurance may help protect your business.
What is E&O insurance? E&O insurance is a form of professional liability insurance. Essentially, it protects companies against clients’ claims that sloppy and erroneous work harmed them.
What does E&O insurance cover? E&O insurance generally covers legal fees, which include court costs and any settlements up to the amount specified by the policy. Without E&O insurance, a company can be held liable for millions of dollars in damages plus legal fees. Having E&O coverage helps a company avoid a dire financial blow and possibly even bankruptcy, depending on the company’s financial circumstances.
Why buy E&O insurance? Regulatory bodies often require E&O insurance for financial companies. This includes insurance brokers, realtors and financial planners. But E&O insurance is also widely used outside the financial industry because of the protection it offers.
Who needs E&O insurance? E&O insurance is a good idea for businesses that provide advice or services. Common examples include accountants, insurance agents, writers, lawyers and event planners.
Who doesn’t need E&O insurance? Companies that don’t provide services generally don’t need E&O insurance. Another exception is medical professionals (such as doctors and dentists), who purchase a very specialized type of E&O insurance called malpractice insurance.
How is E&O insurance used? Let’s say a company runs servers used for data backup, and those servers are breached by hackers (a growing problem that also may require insurance, but that’s another topic).
The hackers gain access to proprietary client data hosted on the company’s servers, and the clients affected by the hack sue the server-hosting company for damages.
Fortunately, the server-hosting company has a robust E&O insurance policy that covers such situations. The server-hosting company reaches out to its insurance company, which in turn provides counsel, pays for the legal expenses involved in the court case and covers any damages the court or arbitrator awards.
How much does E&O insurance cost? The price of E&O insurance depends on several factors, including the type, size and location of your business as well as your claims history. But on average, E&O insurance can cost between $500 and $1,000 per employee per year, according to Investopedia. But we can give you a more precise quote that factors in your company’s circumstances and needs.
How do I choose an E&O policy? The benefits E&O insurance provides can vary significantly depending on the policy and issuing insurance company. For example, most policies won’t cover criminal prosecutions or claims stemming from work done before the policy was in effect. And some policies may not cover temporary employees.
If you are in the business of providing professional advice or other services, you should consider E&O insurance. Call or email us today to discuss your E&O insurance needs.