Error Omission Insurance-Should You Get It?

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Error Omission Insurance-Should You Get It?

Is error omission insurance (E&O) worth it? The truth is, it depends on your company. In some cases, it can save you millions of dollars-in others, it can cost you much more than it is worth.

What is the purpose of this coverage? It covers you in the event that you are sued for mistakes your company makes when rendering a service. Many times the customer will sue you if your mistake cost them money, in an attempt to get back what they lost.

In some cases, they do not just sue for money they lost, but also for emotional damage incurred as well (most often seen with doctor errors). If they win the decision, the dollar amount you have to pay could be enormous. This is where E&O coverage comes in. In addition, it will cover the cost for hiring a lawyer as well, which in many cases can be in the thousands of dollars. In other words, the whole court process from beginning to end is covered.

The reality is, E&0 coverage is imperative for some companies or professionals to have. For instance, if a doctor makes a mistake in surgery, they could be on the hook for a huge amount of money. If a building company makes an error on the construction of a power plant, the damage could be even worse.

Do not say it could not happen to your company-it could. Regardless of how good you are at what you do, it is always possible that an error could happen that results in damage to the customer.

Is it possible to limit your risk? Yes. By stating beforehand that you cannot be held responsible for certain things in the service agreement, you definitely do lower the odds of you being sued. However, you obviously cannot specify everything in these agreements, which is where error omission insurance comes in.

Be prepared-this insurance is going to be expensive. After all, if you have a company that deals in high dollar value transactions, every little mistake you make can be very costly. Therefore, the risks to the insurance company are enormous. In other words, do not expect to pay what you are for car insurance. After all, a lawsuit could cost you millions of dollars, whereas the cost to replace a company car is generally no more than $30,000.

However, you can certainly reduce the price by taking a few simple actions. First, make sure your quality control processes are good. This will limit the mistakes your firm makes, and therefore your odds of being sued. When the underwriter is assessing your company, they will take this into consideration.

The other variable (which you have little control over) is costly accidents you have had in the past. If you are being sued a lot for mistakes, you will pay a lot more as opposed to if it just happens every now and then. While you can do little about past slipups, you can certainly improve your quality control process and prevent future errors. This will reduce your price some.

The bottom line-if your company deals in high priced transactions and a lawsuit is a possibility, error omission insurance is imperative.

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