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Who Needs E&O Insurance

Who Needs Errors and Omissions Insurance?

As a business owner, you want to protect your company at all costs. That’s why you purchased general liability, workers’ compensation, and property insurance as soon as you opened your doors. You figured those three policies would be more than sufficient to protect your business—but you might need an errors and omissions (E&O) policy to fully protect your risks.

How Does Errors and Omissions Insurance Work?

E&O coverage is a type of professional liability insurance that pays for legal expenses, court costs, and settlement amounts if a dissatisfied client sues you over a work mistake. A mistake could include inaccurate professional advice, a contract breach, an omission, negligence, or misrepresentation.

Let’s say you’re a small tax firm that prepares returns on behalf of clients. Tax season rolls around, and you get way more business than you did last year. The influx of clients is great for your business, but it leaves your staff scrambling to complete their work. One client’s return gets lost in the madness, and you fail to file before the federal deadline. Before you know it, you’re getting hit with a lawsuit. Because this suit is related to professional services, your general liability insurance won’t cover it—but your E&O policy will.

Is Errors and Omissions Insurance Required?

You may need an E&O policy to fulfill contract obligations, receive a professional license, or comply with state or federal laws, depending on the type of business you own. For example, law firms need E&O insurance to meet their state bar association’s requirements, and medical professionals need it to practice in most states.

On the other hand, if you own a company in the professional services sector that doesn’t require an E&O policy, such as a marketing agency or technology firm, you still need errors and omissions coverage in the event of a lawsuit. That way, you can avoid paying expensive court costs out of pocket

How Much Does E&O Coverage Cost?

The last thing you want to hear is that you need a new insurance policy, and by the way—it will cost more than your other policies combined. Luckily, E&O insurance coverage tends to be affordable. Small businesses can expect to pay between $500 and $1,000 a year on their policy, depending on their risk factors.

The exact cost of E&O insurance varies based on a few factors, including:

  1. Industry: If one mistake in your industry could lead to substantial financial loss, you will likely pay more for your coverage. For example, you might pay more for your technology E&O policy than an accountant would pay for their policy. One IT-related mistake leading to a data breach will likely cost more to fix than a misentered digit in a spreadsheet.

  2. Coverage limits: The higher your coverage limits, the more expensive the policy. You can purchase limits as low as $250,000 or as high as several million dollars.

  3. Policy type: You have two options for your E&O policy. Claims-made coverage pays for any claims filed after the retroactive date specified in your policy, but you can only file a claim while your policy is active. Occurrence coverage covers claim events that happened while you held the policy, and you can file a claim even after you cancel it. As a result, occurrence policies are generally more expensive.

Who Needs Errors and Omissions Insurance?

There is no blanket E&O insurance requirement for all businesses offering professional services to clients. However, if you fall into one of the following categories, no matter how small or large your business is, you most likely need E&O insurance coverage:

Marketing Consultants

If you’re the owner of a small marketing agency, your clients count on you to collect valuable information on target audiences to improve their business results. However, if a client claims your strategies aren’t resulting in growth or causes them to lose money, you could be sued. E&O policies can help protect your marketing agency from claims alleging professional negligence, inaccurate advice, violation of good faith and fair dealing, and misrepresentation.

Technology Firms

An E&O policy for IT companies provides coverage for mistakes, omission of information, software errors, and negligence in technology services or products. Let’s say you sell software or write code for a client’s website that damages their operating system, so the company files a claim against you for errors in your software. A technology E&O policy would cover the costs associated with the claim.

Real Estate Agencies

E&O insurance covers real estate brokers, agents, appraisers and other real estate professionals if a client sues your business for a mistake in the services given. Errors and omissions insurance can help cover legal costs for claims making allegations like:

  1. Hosting an open house without mentioning a structural flaw in the home

  2. Describing a property incorrectly in a home listing

  3. Offering inaccurate legal advice to a client purchasing a home

If you’re an insurance agent, engineer, or accountant, you should also consider errors and omissions coverage. To understand your specific E&O insurance requirements, read your client contracts and any state laws pertaining to your profession.

If you’re not sure how much coverage you need, the E&O experts at Southpoint can assess your risks and recommend the right coverage amount for your small business.

Do You Need Errors and Omissions Insurance? We’ve Got You Covered

At Southpoint Insurance, we have experience finding E&O insurance policies for a diverse group of clients across the country. Whether you need oral surgeon malpractice insurance or a standard professional liability policy, Southpoint can help. Get in touch today to discuss your professional liability insurance options or request an E&O quote for your business.

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