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    Insurance | 2 min read

    What is errors and omissions (E&O) insurance?

    Errors and omissions (E&O) insurance is a specialized liability policy that insures against losses not covered by traditional liability insurance. This coverage is designed to protect business owners from claims if a client sues for financial loss caused by negligent acts, errors, or omissions performed during business activities.

    Also known as professional liability insurance, this type of coverage protects organizations against potential fallout from accusations of performing a job or providing a service incorrectly or badly.

    Do I need E&O insurance for my business?

    E&O insurance can help protect your business from lawsuits resulting from client claims of late, incomplete, or unacceptable work due to negligent acts, errors or omissions, or breach of contract during business activities. It helps cover the cost of lawsuits resulting from situations like:

    • Erroneous work due to employee oversight
    • Services not delivered
    • Incomplete work
    • Work completed past deadline
    • Projects running over contract price
    • Breach of contract
    • Negligence claims

    Action Items for Business Owners Before Purchasing or Renewing an E&O Policy

    1.  Define Your Professional Services

    Your first order of business when looking to purchase an E&O Insurance policy is to ensure you thoroughly define your professional services, in other words, what your work entails.

    In order for an E&O Insurance policy to provide proper coverage in the event of a claim, the professional services must be clearly defined when the policy is being underwritten. Once the E&O Insurance policy is drafted, you should review and confirm that all you do for work is reflected in the policy so you are fully protected.

    2.  Identify Who Is Covered Under the Policy

    There are a couple of things to keep in mind when it comes to who's covered—which is the most important part of the insurance policy:

    • First and foremost, the name or names listed on the declarations page on the E&O Insurance policy are the parties covered in the event of a claim.

    • Second, if you have a subsidiary or daughter company, and it meets the specifics of the policy's definition of a subsidiary—it may be covered, too.

    • Third, if your company also has any affiliated entities, which in general are less than 50% owned by the parent company, they may not be covered under the E&O Insurance policy unless specifically added through an endorsement. If you decide to add any affiliated entities, be sure their professional services are also clearly defined.

    3.  Review Industry-Specific Policy Forms

    Whether you work as an engineer, lawyer, software developer, or any other professional providing a service or project, every E&O Insurance policy needs to have its own policy form specific to the type of work you do. This will ensure proper coverage and outline who is insured, the insuring conditions, and the types of losses covered under the policy. It's the responsibility of the Underwriters to draft a policy form tailored to the type of business you conduct, but be sure to review it with a fine-toothed comb so you're not exposed to any gaps in coverage in the event that you have to file a claim.

    In the end, there are many things you should review and consider when shopping around for an E&O Insurance policy—just be sure to keep these three top of mind. 

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    Brett Morgan

    Brett Morgan specializes in alternative risk transfer programs, professional liability, Directors & Officers liability, and employment issues centered on protecting clients’ assets. He has an extensive background in understanding property exposures and a customer’s business processes. Brett has taught various seminars on business interruption, protecting your company while conducting business in foreign countries, and protecting your client’s internal controls from theft.

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