Errors And Omissions Insurance Policy: The Benefits It Offers
The smartest leaders of many professions have errors and omissions insurance
, because let's face it: Everyone makes mistakes. Unfortunately, in today's litigious world, a simple mistake can wind up costing a company everything it owns.This kind of insurance, known as E&O insurance for short, covers a business or an individual, such as a professional or sole proprietor, against the results of mistakes. Legally it protects against a client holding a company, a professional or a proprietor responsible for a service that they provided, or failed to provide, that didn't perform as promised or expected.
Professionals such as doctors, chiropractors, dentists, and other medical specialists have E&O coverage in the form of malpractice insurance. Lawyers, accountants, engineers, architects, general contractors, real estate agents and others have this insurance in the form of professional liability coverage. No matter what it's called, this type of insurance is intended to protect against the costs of mistakes or overlooked actions that resulted in some form of loss to the client.
An errors and omissions insurance policy covers the cost of defending lawsuits, paying for settlements and paying court judgments. As most businesses know, defending against even groundless lawsuits can cost thousands of dollars. Such unexpected expenses can send smaller companies or sole proprietors into bankruptcy, and drain the profits of larger companies.
In addition to covering the principals in any company or professional firm, errors and omissions insurance coverage can be extended to both wage-earning employees and to contractors and subcontractors. This type of insurance can cover a company's operations anywhere in the world.
Some business leaders mistake their general liability insurance for E&O coverage, but this isn't true. As a rule, general liability doesn't cover contract or performance disputes, errors made during negotiations or any other liability issues related to a company's exercise of professional judgment.
Most professionals expect to carry this type of "mistake" insurance as part of their firm's operating costs. Other companies have found that E&O coverage can also be an important part of their business insurance portfolio, especially in advance of launching a new product or beginning a major project. In many cases, venture capitalists investing in start-up companies will require the firm to have E&O insurance as a condition of their financing.
With errors and omissions insurance, businesses purchase a strong shield against the harmful results of genuine mistakes or the expense of groundless lawsuits. It can be one of the wisest insurance purchases any business or professional firm makes.
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