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How Does Professional Liability (Errors & Omissions) Insurance Work?

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The Basics About Errors & Omissions Insurance

When it comes to your company, you run a tight ship.

But the reality is that if one of your clients or customers even accuses you of making a professional mistake that caused them to lose money, you could be on the hook for—at a minimum—thousands in legal fees. 

Fortunately, errors and omissions (aka, professional liability) insurance can help. Here, I’ll outline the basics, standard exclusions, costs, and several high-level examples to keep you informed. 

What Is Errors & Omissions Insurance?

Errors and omissions is a form of liability insurance that protects companies and professionals against financial damages related to their actions or actions they should have taken. While E&O coverage is often paired with general liability insurance to broaden coverage, it’s commonly used in cases of: 

  • Copyright Infringement – According to Copyright.gov, this occurs when “a copyrighted work is reproduced, distributed, performed, publicly displayed, or made into a derivative work without the permission of the copyright owner.” 
  • Defense Costs – Costs to defend you and your company in court, regardless of who’s ultimately determined at-fault. 
  • Negligence – Mistakes resulting from services provided or not provided by your company, which causes the client or customer to lose money. 
  • Personal Injury – Libel, and slander. 
  • Services Performed – Covers current projects and past work you’ve completed and typically falls within a predetermined timeframe, depending on your business’s specific needs. 
  • Temporary Staff & Independent Contractors – Extends coverage to your employees (permanent and temporary) and independent contractors. 

What Isn’t Covered by Professional Liability Insurance? 

Like any other insurance type, your errors and omissions documentation will outline any circumstances where coverage is expressly excluded. And depending on your industry, your insurance carrier might be able to customize policy exclusions to meet your needs. 

With this said, the following exclusions typically apply: 

Next, let’s zoom in and take a closer look at several fictional examples where professional liability insurance might come into play.

Examples of Errors and Omissions Insurance Claims 

E&O Example #1: Clerical Errors 

You operate a mid-size distribution company that supplies electronics to several large regional retailers.  

One of these retailers contacts your company to let you know that they need their regular shipment one week ahead of schedule. Unfortunately, the employee who took the order mistranscribed the date, which caused the client’s order to arrive a week late, and resulted in them losing money since they missed several client commitments on their end. In fact, they lost one of their clients altogether over the incident. 

The client sues for damages, which is where your professional liability insurance would kick in. 

Professional Liability Example #2: Missed Deadline 

A client hires you to build a website for their photography company, including interactive features for obtaining online quotes and booking sessions.  

In the contract, you originally agreed that the site would be published within three months. But after multiple delays over the course of eight months, along with a poorly-delivered finished product, the client ultimately decides to seek another designer. 

Your ex-client also decides to sue you for damages since they couldn’t obtain as much business without a working site. And regardless of the outcome, you could still be on the hook for defense costs. 

E&O Example #3: Professional Negligence 

You operate a company that installs solar panels on the roofs of homes and businesses, which helps them save money over the long run. 

However, a subcontractor mis-wires one of the panels, which causes a fire six months after installation. Fortunately, your E&O insurance backdates coverage a full year, so you have coverage in place to at least defend you in court. 

Which Businesses Might Benefit Most from Professional Liability Insurance? 

The reality is that any service-based business needs E&O insurance, including those that provide contractual services and regular professional advice. Examples include: 

  • Beauty salon and spa owners 
  • Business coaches and management consultants 
  • Counselors and occupational therapists 
  • Doctors 
  • Financial services providers 
  • Insurance agents  
  • IT consultants 
  • Lawyers 
  • Personal trainers 
  • Photographers 
  • Property managers 
  • Real estate agents 
  • Wedding planners 

Regardless of your business and the services you provide, how much can you expect to pay for professional liability insurance? 

How Much Does Errors & Omissions Insurance Cost?

Every business’s needs are different, which means that you can pay a wide variety of prices for errors and omissions insurance. Common factors that could impact your premium include: 

  • Your business’s industry 
  • Location 
  • Number of employees and clients 
  • Years in business 
  • Previous claims  
  • Coverage limits 

In other words, a business that’s been around for three years with one liability claim will likely pay more for errors and omissions insurance that a company in place for a decade with zero claims. 

Where Can You Turn to Learn More About Errors and Omissions Insurance? 

When you’re ready to obtain a quote, give the professionals at IHS Insurance Group a call! 

To help make the process smoother, it’s a good idea to have copies of contracts and previous E&O coverage. Insurance carriers often want to know details about your business’s documentation procedures, quality control processes, and how you train your employees. 

Need a FREE Quote or have questions regarding commercial insurance? Please fill out our quick GET A FREE QUOTE form, and an agent will get back to you at your convenience!

We look forward to speaking with you today!

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