Errors and omissions insurance is alternatively known as professional liability insurance or professional indemnity insurance. A private company might seek protection in the form of liability insurance to help protect against bearing the full brunt of defending a negligence claim in court.
What does Errors and Omission Insurance Cover?
Typically, companies that specialize in advice-giving or service-rendering sectors require errors and omissions insurance to indemnify themselves against a disgruntled client bringing a negligence claim against the company. In other words, a customer may decide to file a civil lawsuit in spite of your best efforts to keep complications at bay.
Liability insurance also can defray the monetary damages associated with a successfully-argued negligence case against a private company. Whatever the legal outcome, errors and omissions insurance helps protect the policyholder (e.g., private company) against a supposed failure to perform a service or provide suitable advice to the client.
Companies and Professionals that Need Coverage
The most common form of liability insurance in the medical profession is malpractice insurance while lawyers, brokers, and consultants would typically seek errors and omissions insurance.
Professionals within accounting and financial services often require errors and omissions insurance due to the advice-giving nature of their jobs whereas the construction and transportation industries deal primarily with general liability insurance and protection against bodily injury.
Traditional general liability insurance covers areas like property damage, bodily injury and personal injury; some common claims that errors and omissions insurance cover, though, include violations of good faith, misrepresentation, and professional negligence.
Although consultants and brokers are highly represented among professionals seeking errors and omissions insurance, virtually any individuals who provide service or instruction in a professional capacity are susceptible to negligence claims and, therefore, require errors and omissions insurance coverage.
Why Private Companies Require Liability Coverage
Even commercial printing companies and advertisers require errors and omissions coverage because they are both providing a service to a client in a professional capacity.
Increasingly private companies dealing in information technology and web hosting are seeking errors and omissions insurance to protect against settlements, judgments and possible defense costs associated with negligence.
Private companies should realize upfront that the most stringently-enforced risk management practices and well-trained employees can’t totally protect against negligence, routine mistakes or occasional professional incompetence.
As an example, say a shipment amounting to tens of thousands of dollars does not make it across the country in time to meet a non-negotiable deadline. Errors and omissions insurance may defray some of the costs associated with the shipper’s oversight or professional negligence that cost the disappointed recipient of the shipment thousands of dollars.
Advantages of Errors and Omissions Insurance
Clients are often put at ease knowing that private companies in the service industry are indemnified against errors or omissions. Why? Clients understand that errors and omissions policyholders take risk management seriously and protect their clients in case of mistakes or negligence.
Private companies should consider making errors and omissions insurance part of their standard insurance portfolio. Fortunately, errors and omissions insurance involves a “claims made and reported” form that retroactively covers negligence that occurred within the specified duration of the liability coverage.
Some errors and omissions packages include defense expenses and protection against punitive damages. The terms and wording of errors and omissions coverage vary by profession, risk management, and type of negligence exposure inherent to a particular job. A lawyer, for example, would enlist different liability coverage than a consultant or web developer.
In closing, aside from obtaining errors and omissions insurance, private companies should consider putting in place clear, written contracts and ensuring good, ongoing communication with the client to mitigate the chances of negligence or lawsuit.