Errors and Omissions Insurance

Errors and Omissions (E&O) insurance is a type of professional liability insurance that covers your business should you fail to provide a service which results in damages to a client. As the name suggests, any mistakes that your company makes when providing a service would be covered by E&O insurance. This coverage includes paying for fees, court costs, legal fees, and any unfavorable judgments from litigation brought against you by a client. Although seemingly straightforward, it’s sometimes difficult to determine whether your business needs E&O insurance or some other type of professional liability insurance or both. The following information can help you determine what type of insurance you should consider to fully protect your business:

• Some business owners believe that if they structure their company as a Limited Liability Corporation (LLC) that they then don’t need to purchase E&O insurance. But this simply isn’t true. An LLC protects the personal assets of the business owners from litigation. So, if a lawsuit is filed against the company, the owner won’t be personally at risk. But an LLC does nothing to protect the business itself from litigation. Meaning if a client won a breach of contract lawsuit, then without E&O insurance the assets of the company including cash, equipment and materials would have to be liquidated in order to satisfy the unfavorable judgment. E&O insurance pays the costs of any litigation rather than the company having to do so.
• Another common misperception is that General Liability insurance covers the same claims that would be covered by E&O insurance. General Liability, however, typically only protects against physical damage to either a person or property. So if a person is hurt while visiting your business, General Liability would pay for those injuries or for any litigation resulting from the incident. E&O insurance, on the other hand, protects against financial damages that your business causes as a result of the services provided. So say, for example, your insurance company fails to collect the proper signatures on an application. Errors and Omissions insurance would protect your business from litigation or would pay the fees resulting from the oversight. In some instances, both a General Liability policy and an E&O policy are necessary to fully protect your business.

The best way to determine what type of E&O insurance you should purchase is to ask a licensed agent in our office. We can assist you with assessing your insurance needs and provide you with some quotes from several of the top insurance companies.