Ask Fitz: Errors and Omissions (E&O) Insurance

The majority of professionals spend a significant amount of time in training and education prior to beginning their careers. Despite this training, however, even the most conscientious professionals still make mistakes.  A mistake could surface as a major error or omission or a simple clerical error. Regardless of its severity; this type of professional mistake could likely result in an expensive lawsuit. Therefore, small business owners in particular need to know the error and omissions (E&O) insurance basics in order to ensure protection from this type of suit.

Coverages Under an E&O Insurance Policy

E&O claims are broad and often times unwarranted. When a client sustains financial damage, however, their first instinct is often to sue everyone involved, even if the services your business provided did not contain any errors or omissions. This requires expensive defense costs, even if you are confident in the quality of the services provided.  

Errors and Omissions insurance coverage can help respond to E&O losses in several ways:

  • Damages
  • Defense costs
  • Personal injury (libel, slander)
  • Professional or regulatory disciplinary proceedings
  • Loss of earnings during defense
  • Subpoena assistance
  • Temporary staffing needs     

E&O claims typically provide coverage to businesses based on three primary categories:

  1. Oversights and errors – professionals do work on a daily basis that is subset to scrutiny and if incorrect, then it may lead to financial damage for a client. This type of claim tends to be the most common E&O claim.
  2. Undelivered services – businesses take actions each day based on the needs of their clients. When a business fails to take the necessary action that it needed to take, then a client will likely suffer financial damage.
  3. Not meeting industry standards – this type of claim occurs when the business fails to provide services consistent with industry standards. The services were not necessarily erroneous, however, since they did not meet reasonable standard, the client incurred financial damage.

Industries That Benefit from an E&O Insurance Policy

The below list represents professional industries that have a significant exposure to potential E&O claims. This list is certainly not exhaustive, but rather a sampling of industries that reply of professional services for success.

  • Attorney
  • Information Technology professionals
  • Management and business consultants
  • Real estate professionals
  • Tax preparers
  • Accountants
  • Advertising agencies
  • Graphic designers
  • Interior decorators
  • Travel Agents

Claims Made vs. Occurrence Based Coverages 

      An important distinction associated with a professional liability policy is that it is ‘claims made’ instead of ‘occurrence based’. Claims-made coverage means claims have coverage when filed during an active policy period, as long as the insurable event occurred after the retroactive date as defined in the policy. For example, if a business fails to pay its E&O premium and the policy cancels, then its coverage will lapse and the business will not have coverage for any claims, even if they occurred while coverage was in force. Therefore, a business with E&O coverage must know when their initial exposure began in order to establish an accurate coverage retroactive date.

Ultimately, most businesses with professionals providing services to customers need to consider some level of E&O insurance. Even the best businesses may suffer financial simply because of defending their business against professional liability claims.  As a Trusted Choice Independent Agency, the Oswego-based FitzGibbons Agency is here to help your business review your potential exposure to costly E&O claims. Give us a call today and let us discuss how we can help your business establish an effective E&O insurance program.  

Just Ask Fitz!

John FitzGibbons

FitzGibbons Agency

44 East Bridge Street

Oswego, New York 13126

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