Errors and Omissions insurance, commonly known as E&O insurance, is a form of professional liability insurance designed to protect employees and employers against clients’ claims of negligence or inadequate work. E&O policies usually cover legal costs associated with the claim and most or all of the ensuing settlement, though a policy may not cover the entire settlement if the amount exceeds the limit specified in the insurance contract. If you are a business owner and wonder if you need this type of coverage, here are some answers to some commonly asked questions regarding this type of policy:
What Do Errors and Omissions Insurance Cover?
An E&O policy defends you and your employees from wrongful acts, which means any actual or alleged breach of duty, negligent act, error, omission or personal injury committed by you in the performance of your professional services. It excludes malicious or intentional acts, and other restrictions are outlined in the restriction’s clause of the contract. The definitions portion of the contract should give you a clear idea of what is covered. Defense costs are covered up to the policy’s specified limit. Also, any unique or specific types of coverage are outlined in the declaration section to give you further clarification.
Is Errors and Omissions Insurance Legally Required?
While not all types of businesses are required by law to carry this coverage, some professionals are required by regulatory or licensing boards within their profession to have it. In more than ten states, real estate agents are expected to show proof of E&O coverage before they receive their licenses. Many states require all process servers to have E&O insurance with specific limits.
While local or state laws may or may not expressly require some types of professionals to carry E&O coverage, other laws regarding their duty of care to clients make it a necessity.
Is Errors and Omissions Insurance Necessary?
Although it may not always be required by law, clients often need independent contractors to have E&O insurance to qualify for a project contract.
Who Needs Errors and Omissions Insurance?
As a rule, if you are a professional who provides a service to a client, E&O insurance is beneficial even if laws or licensing boards do not require it. E&O insurance is useful whenever you or your employees provide a service that a client could claim is inadequate or tied to negligence. With E&O insurance, you can strengthen your company’s reputation by demonstrating that you are well-prepared and risk-averse. E&O insurance also shows that you have high standards and hold your workers to them as well. Besides, it shows that you realize the potential for human errors and care enough about your company to protect them in the event of a mistake. Although many professionals never have to file an E&O claim, having the policy provides valuable peace of mind.
Caton Hosey Insurance offers E&O insurance for many industries in addition to general commercial liability and Business Owners Policies. Our Agents are ready to answer any questions you may have on this topic. Call us today.