Errors and Omissions Insurance (E&O)
Nearly all brokers have customers with errors and omissions insurance (E&O) exposure, and the most challenging job the broker may have is convincing the customer that they have the exposure. Here are some easy responses to questions about Errors and Omissions insurance that appear to function best.
What’s Errors and Omissions Insurance (E&O)?
Errors and omissions insurance is the insurance that covers your business, or you separately if a customer holds you responsible for a service you supplied, or neglected to supply, that didn’t have the anticipated or promised results. For physicians, dentists, chiropractors, etc., it’s frequently called malpractice insurance. For architects, accountants, attorneys or engineers, it might be called professional liability. Regardless of what you may call it, it covers you for mistakes (or omissions) that you have made, or your customer perceives you’ve made.
Most E&O policies cover judgments, costs of settlements and defense. Tens of thousands of dollars could be required to defend the suit even in the event the claims are found to be groundless. They possess an enduring impact on the bottom line of firms that are bigger and can break a smaller firm or person.
Simply speaking, E&O provides coverage protection for you if an error on your part or omission has caused a financial loss for your customer.
Who Should Buy E&O insurance?
The best-known professionals that need E&O insurance are physicians, attorneys, accountants, architects, engineers, etc. Less thought about people vary from advertising agencies to Web hosting companies. You have got an E&O exposure, in the event, you are in the business of supplying a service to your customer to get a fee. You might want to contemplate what is going to occur in the event the service is not delivered on time or correctly. Also, if product or service has the potential to cost your customer cash or can damage their standing.
Does my business need coverage?
Everyone makes errors, to place it quite simply. Despite having the most effective risk management practices set up as well as the most effective workers, errors will probably be made. No one is perfect.
If a freight forwarder sends cargo to South America instead of South Africa, and this is time-sensitive shipping as well as their customer loses a deal and, thus, thousands of dollars, who will pay the loss?
If your wedding planner books the reception hall, the caterers, the band, etc., for May 22 instead of May 29 and everyone shows up except the wedding party and guests, who pays? And picture the psychological distress caused to the bride if this were to occur!
Additionally, there is a less real loss of reputation for both the customer and the professional. Just what will the expenses be to the company that has goods in South America instead of South Africa? Will they lose future contracts with their prospective customers in addition to their present client?
If a company doesn’t buy Errors and Omissions insurance, it might be taking a serious financial risk. These kinds of losses will not be insured under general liability coverage. And, as said before, even if you’re not to blame, litigation is both expensive and time-consuming.
When should you purchase Errors and Omissions Insurance?
As with any insurance, the optimum time to get a coverage E&O before the risk occurs. If you realize you are going to get the exposure and in the event, you are in the service industry, make an E&O insurance part of your insurance portfolio. Many contracts with customers will require insurance to be in place. Sometimes, it’s a selling point with your customers. It offers them the satisfaction of knowing that when there is an error or omission, they’ll be compensated.
Where Do You Get Coverage for E&O?
There are not any “normal” policy wordings for E&O coverage. Each policy should be read carefully to ensure that the coverage fits your exposures. A physician, a lawyer, as well as a computer programmer, have exposures; yet, precisely the same policy wouldn’t work for all. There’s no “one size fits all” E&O coverage.
Most E&O coverage is composed on a “claims made” or “claims made and reported” form. This, within the coverage period, means that a complaint should be made or, sometimes. This coverage has a retroactive date that becomes essential. Claims that arise from acts committed before the retroactive date are not going to be covered.
Some policies have defense expenses within the limit of indebtedness. Some won’t include punitive damages. The wording of the coverage can differ considerably, and every policy has to be read carefully to ensure your particular vulnerabilities are covered by the policy.
For this reason, it is extremely important for retail brokers to seek out specialty insurance professionals that understand the E&O coverage and market. Distinct advice might be needed depending on the kind of exposure.
The price of E&O insurance may fluctuate considerably depending on the type of business, place, claims expertise (both of the individual insured and of the sector, they’re in) and from one insurance company to another. An insurance provider which is extremely competitive for real estate professionals or insurance agents, might not be competitive, or might not offer coverage even whenever advisor works with real estate or insurance agents.
An insurance company underwriter may request copies of contracts, a description of quality control processes, documentation procedures, training processes, etc., or they may need nothing more than a finished application.
The underwriter will not just examine your expertise to find out for those who experienced claims. However, they’ll also attempt to find out the reason you haven’t had claims. Could it be a chance or have you been doing something which prevents the claim in the very first place? And for those who experienced claims, what measures have you taken to make sure that the same mistakes are not going to continue to happen?
Here are a few actions you may take to mitigate claims:
- Always possess a written contract that spells out what the fees will most likely be. Include a service level agreement that contains what you will deliver and when you will deliver it.
- You may even want to create date ranges for delivery times to keep the expectations realistic.
- Have quality control processes in position and use external and internal audits to assess them.
You should use your companies historical successes and procedures as evidence to make the underwriter confident that he has your business controls properly documented and understands the risks associated. In this way, you may be able to help the underwriter recommend a lower rate for you.