Errors and Omissions Insurance (E & O Insurance or Professional Liability Insurance) protects business professionals (engineers, architects, doctors, lawyers, consultants, etc.), whose clients could claim damages as a result of the business professional’s negligence, flawed performance in their commitments to the client, or an error in judgement, or some omission by them.
If you are providing a professional service, errors and omissions insurance protects you by shielding your assets, and by paying for your legal defence if a client makes a claim. This applies even when the legal action turns out to be groundless.
On the other hand, errors and omissions insurance protects your clients in that this type of coverage ensures that there will be appropriate funds available to pay for damages incurred, should your professional services in some way cause a loss to a client.
Errors & Omissions Insurance is designed for anyone providing a professional service, including: engineers, consultants, lawyers, accountants, teachers, software developers, planners, real estate agents, brokers, architects, general travel agents, appraisers, translators, contractors, and other professionals.
Malpractice Insurance is designed for: doctors, nurses, chiropractors, other healthcare professionals.
Professional Liability Insurance may be required by law or your association (particularly for the medical and legal professions), and is also sometimes required under contract by other businesses that use your products or services.
It may appear that a business can opt out of buying errors and omissions insurance. It is important, however, to consider the ramifications of not having it. It just takes one simple business error to set your company back financially and ruin an otherwise excellent customer service reputation.
Examples of actions that can precipitate a lawsuit:
Obviously this list is not exhaustive. A mistake (an error or omission), can happen at any time or point in almost any transaction, and within any profession. And the mistake doesn’t have to be made by the professional; it could be an error or omission that an employee makes.
No. Errors and omissions coverage protects you from financial losses due to errors you may make while doing your job. General liability insurance responds to claims of bodily injury or damage to the property of others, either at your business location or your client’s.
For example, general liability insurance comes into play if a client suffers a fall while visiting your office, or if you or one of your employees accidentally injures someone or damages the property of others at your business premises or at a client’s premises.
However, if a client sues you because they think you made a mistake in the course of doing your job, or in some way showed professional negligence, general liability doesn’t cover you. Therefore, errors and omissions insurance protects you, a staff member, or your company from paying for the defence for lawsuits tied to an alleged error or omission in providing your professional services.
Errors and omissions policies are unique in that they are based on a “claims-made” principle, compared to “occurrence-based” policies. What this means is that occurrence-based policies focus on the time when the negligent act or damage occurred, whereas the claims-made policies only provide protection for claims made during the policy period. A key feature of a “claims-made” policy is that there must be an active in force policy for a claim to be paid by the insurance company.
What if I retire or close the business? Can I still get coverage to protect me against someone making a claim for something that happened in the past?
If you currently have a policy in place you may be able to purchase a type of professional liability coverage (sometimes referred to as “retirement” or “run-off” coverage), which will protect you against liability for a period after your business closes. However, it is important to note that depending on your field, lawsuits may arise many years after your practice is closed. Therefore, it is important to be aware of the limitations when you are obtaining a retirement or run-off policy.