Errors & Omissions (E&O) Insurance: Definition

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What is Errors & Omissions (E&O) Insurance?

Errors & omissions is a type of insurance policy that is also commonly known as E&O or professional liability insurance. It’s meant to protect your business in the case that a mistake or oversight on your part causes a client to suffer a loss. It also helps to protect your business if a client believes that this is the case.

E&O is unique in the manner in which it covers businesses, providing coverage in the cases of negligence, incomplete or erroneous service. Business owners often see it as a risk management tool. Though you have to pay regular premiums, you could be saved from having to spend thousands of dollars if a client sues your business for a mistake on the part of one of your employees.

E&O insurance covers the damages caused by the mistakes of your company in providing services to a client and legal defense costs if a client decides to sue you, regardless of whether you are at fault or not. Businesses could have to pay thousands to prove in court there was no mistake by the company that resulted in the alleged losses of the client.

Here’s a situation covered by E&O insurance:

Let’s say you own a goods distribution company, and one of your employees makes a typo that results in the delay of a shipment and consequently causes your client to lose money. If the client files a suit, the E&O could help to cover the legal expenses and damages so that your business wouldn’t be put in jeopardy by the costs. Remember that coverage limits and deductibles apply and they vary from one policy to another.

What Costs are Actually Covered

Such legal expenses generally include the actual fee of the lawyer, which can be one of the biggest portions of the costs, expert witness fees, court costs, settlements, judgments and administrative costs related to the documents necessary for your case (shipping, storing, processing, etc.).

Any company that goes through this type of lawsuit and is not covered by an E&O policy would have to deal with all these costs on their own, thus potentially disrupting their operations. The lawsuit itself can also cause damages to the reputation of the firm and, if you add in the legal expenses, many companies would not be able to recover fully.

There are E&O policies that cover retroactive claims, meaning errors that occurred prior to the coverage being enacted. Similarly, policies can also cover subcontractor errors so that your business is exempt from paying for subcontractors’ mistakes. If these are features you’d want in a policy, make sure to inquire about them specifically.

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The coverage you need depends on the type of business you run. A restaurant owner needs to be covered against customers possibly getting food poisoning while an accountant needs to be covered against calculation errors. CoverWallet's intelligent assessment system will identify the insurance you need based on your specific business, get you a policy that fits your budget, and do it all in less time than you think.

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