How Can Professional Liability Insurance, aka Errors and Omissions (E&O) Coverage, Protect Your Business?
A construction project manager oversees a project that misses several important deadlines and delays the completion of the project. The client files a claim as they are unsatisfied with the level of professional services received.
A client hires an IT firm to code its website, but bugs were found in the final product. The client filed a claim citing negligence – poor oversight on the part of the IT firm resulted in these errors.
A company hires a human resources (HR) consultant to screen potential candidates for a supervisory role. One year later, the company decides to fire the chosen candidate and is subsequently sued for wrongful termination. As a result, the company files a third-party claim against the HR consultant, alleging that the consultant failed to conduct a thorough background check.
A client files a claim to reclaim alleged losses for tax liability after their accountant set-up a client’s investment properties as a corporation instead of a partnership.
In each one of the scenarios described above, professional liability insurance, also known as errors and emissions (E&O) coverage, can protect your business against such claims that professional advice or services you provided caused a customer financial harm based on actual or alleged mistakes or a failure to perform a service. In addition to helping cover client or customer loss, insurance coverage can help manage claims, pay legal expenses, meet contractual requirements, plus give your customers extra security. According to Chubb, “any business that provides its clients with expert guidance, information, or knowledge-based services—such as a bookkeeper, marketing consultant, or executive recruiter—can benefit from professional liability coverage.” Remember – mistakes do happen, even when we try to avoid them, and it’s a good idea to be prepared.
E&O Insurance works in conjunction with, and does not replace, CGL (Commercial General Liability) coverage. CGL policies cover negligence claims resulting in a customers’ bodily injury, property damage, or personal and advertising injuries; whereas E&O insurance protects companies and individual professionals from claims brought by clients or customers for negligence that may result in monetary damage, rather than only bodily injury or property damage. While both types of policies generally provide defense of the insured, there is no coverage under either policy for intentional conduct.
One difference to note between the two policies is that CGL policies are generally occurrence-based policies and E&O policies are often claims-made policies. An occurrence-based policy responds to claims that happened during the policy period, regardless of when the claim is reported. A claims-made policy only provides coverage for claims that are reported to the insurance company during the policy’s effective dates. There is usually a “tail” coverage on these policies, which extends the time to report for claims that are reported near the end of the policy term. It is important to be aware of the coverage trigger for each type of policy.
An insurance broker such as Rose & Kiernan, Inc. can assist in finding the best E&O insurance policy to meet your businesses’ needs. Most major carriers include this coverage as part of their product offerings. Professionals and business owners with existing commercial general liability (CGL) policies should check with your current provider to add E&O coverage or purchase it as an add-on to your current policy. If you have any questions, we can help! Please contact us here or by calling 800-242-2433.