Errors and Omissions (E&O) insurance, also known as Professional Liability insurance, protects organizations or individuals against claims of financial loss due to negligence in the delivery of professional services. Professional liability related to errors or omissions, whether actual or merely perceived are not covered by General Liability insurance. (General Liability essentially covers claims of bodily injury or property damage.)
As the business climate grows more complex, so do the insurance needs of business owners, regardless of whether they employ hundreds of consultants or operate as a sole proprietorship out of their home. Errors and omissions insurance coverage is critical and it protects businesses in two vital areas: legal defense fees and settlement expenses.
Most E&O policies will cover defense costs, which, even if the allegations are found invalid, can cost tens of thousands of dollars. For many small businesses and individuals, high legal defense costs could lead to serious financial strain or even bankruptcy.
Who's at risk?
Professionals who most commonly need E&O insurance include doctors, lawyers, engineers and consultants. However, there are a handful of businesses in which E&O coverage is often overlooked, these include advertising agencies, Web hosting companies, service providers, Web and graphic designers, and other Internet-based service companies. Nearly every organization that provides a professional service to a client for a fee has E&O exposure, and because professional requirements are typically undefined in legal terms, Professional Liability insurance shields businesses from the unforeseen.
In some cases, subcontractors may be required by the client to provide proof of General and Professional Liability insurance. Any business that provides specialized service or performs work on a project that is critically important to the client's business, will want to insure themselves against E&O claims. This risk opens the contracted business to potential litigation. If a client perceives a task was not carried out as promised, they can file claims on several issues, including:
* Software or system failures that cause a client to lose profits * Failure to perform duties * Loss of client data * Copyright infringement on Web site and software development * Failure to meet pre-determined benchmarks on specific projects
While quality control can reduce the risk of errors and omissions, no company has complete immunity to it. Even with the best and brightest employees serving on the frontline, mistakes will happen and if the client feels the service was not completed as promised, if it costs the client money, or damages their reputation, then the company could be at risk of E&O litigation.
Ensuring the policy meets the company's needs
Costs for errors and omissions insurance coverage vary significantly. Many factors are taken into account such as, the type of business, the type of services provided, the location, claim history, and size of the business. The competition among insurance providers, however, works to the business owner's advantage, and the process for receiving an E&O insurance quote, cost comparison and detailed policy information should be fairly simple.
While the process will vary, some insurance company underwriters will ask for copies of contracts and descriptions of quality control procedures, while other underwriters may simply request an application be completed. When searching for an E&O insurance quote or reviewing a policy there are several key features to be mindful of:
* Coverage should include legal defense costs.
* Both W2 employees and 1099 subcontractors should be covered ? the company should be protected against claims from work performed by 1099 subcontractors on the company's behalf. In many cases, however, 1099 personnel are not covered and would need their own errors and omissions insurance coverage.
* Optional coverage for allegations of copyright and intellectual property infringement ? this protects the company from claims alleging copyright infraction. Intellectual property infringement coverage is particularly important for software, systems or processes, as they are the most widely known ?intellectual properties.?
* Personal injury coverage such as claims of libel, slander and invasion of privacy
* Worldwide coverage ? this covers incidents regardless of where they originate.
Defending a claim
In the event a claim is filed, E&O insurance will adequately prepare the company to defend its case. It will pay for a strong legal defense and potentially save a small business or individual from severe debt. Unfortunately, laws and legal precedents that govern the technology industry are still under development, which often puts IT professionals in unknown legal territory.
However, while mistakes are bound to happen, there are a few steps businesses can take to mitigate claims:
* Have a written contract detailing what service will be provided, what is not included and the fees for delivering that service
* Communicate throughout the entire job; give the client realistic expectations upfront and provide regular status updates
* Implement quality control procedures, and regularly conduct audits to ensure the procedures are being adequately executed
Once the contract is written, be sure it contains very specific information, including:
* Limits of liability ? the dollar amount per occurrence of liability
* A section detailing the services the company will be providing
A written contract is one way businesses and individuals can protect themselves, however E&O insurance will provide an extra layer of protection against the unknown and unexpected. Defending a claim is costly and time consuming. Regardless of whether a suit is deemed unreasonable, attorney fees will still need to be paid. In some instances, costs for defending a case can exceed the cost of a resulting settlement. E&O insurance covers attorney fees, any settlement costs that may result, and allows the business owner to continue operating without fear of potentially having to face bankruptcy or a mountain of debt.
In today's uncertain economy, business owners need to be more aware and informed of their professional vulnerabilities. Now is the time for Home Inspectors to protect themselves against unwarranted claims of personal negligence. Now is the time to get Errors and Omissions Insurance. Errors and Omissions Insurance (E&O Insurance) is a policy that provides you coverage from a potential claim arising from your professional advice or service. You may already have traditional Commercial Liability Insurance but you still vulnerable to claims of personal negligence. Professional liability related to an error or omission is not covered by General Liability Insurance Errors and Omissions insurance is more important in this economy than ever before. While the housing market is crumbling and foreclosures at their highest in recent years, Home Inspectors are still doing their jobs. Their exposure to homes in foreclosure may lead to more hidden problems due to neglect from homeowners due to loss of income and tight budgets. Homes in disrepair are more common in this market and the potential to make a mistake and miss something is not out of the question. Error and Omissions Insurance can protect you from potential claims and the extra costs incurred. Errors and Omissions Insurance could include Attorney fees as well as judgments, settlements and defense costs that can result from errors (or Omissions) that you have made or that a client has perceived you have made. Errors and Omissions Insurance can vary to its specifics, so make sure it should include the follow: ?Dollar amount for each liability ?Deductible amount for each liability ?Deductible amount for defense costs ?A section explaining what the policy is for: "This Errors and Omissions Insurance policy applies to errors, omissions or negligent acts in the course of providing or failing to provide professional services." ?A section listing the services you provide in as much detail as possible ?The retroactive date for claims ( unless written by an occurrence form) Home Inspectors are working hard in this economy to endure. Errors and Omissions Insurance is the safety net to protect their livelihood. No one should be caught without coverage against personal negligence when in these trying times some are turning to desperate measure to survive. Be prepared for the unexpected claims and accusations. Errors and Omissions Insurance is worth the peace of mind.
Both James Cochran & Linda Dunkelberger are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.