In short, the term “errors and omissions” refers to a specific type of malpractice insurance coverage that is available to businesses. Errors and omissions coverage protects various types of businesses and professional organizations against mistakes they may make when serving their customers, which might result in financial harm to the organization.
Within a business or professional organizations professional liability insurance, known otherwise as an errors and omissions policy or “E&O” insurance, there will be coverage for companies such as real estate brokerages, technology companies, or other companies from business litigation risks arising from legal claims.
It is important to note that an errors and omissions policy may also be part of a larger professional liability insurance coverage package. Once again, one of the main advantages of e&o policy insurance is that it covers a business from certain litigation risks which would result in economic harm to the company.
However, although errors and omissions policies cover business litigation risks arising from mistakes made serving customers, there are many things that are not covered, i.e. excluded from an errors and omissions insurance policy. As such, it is important to understand the terms of the coverage present and offered within the errors and omissions policy insurance.
What Does Errors and Omissions Insurance Cover?
As mentioned above, errors and omissions coverage does not cover every instance of business litigation risks. In short, the purpose of an errors and omissions insurance policy is to protect an insured who commits an act of professional negligence when serving their customers. In other words, errors and omissions insurance provides coverage for any legal claims arising from customers who are raising accusations of negligence due to an error or omission.
For instance, if the business professional made an error on a balance sheet, or if they omitted an important entry, and that error or omissions resulted in economic harm to their client, that client may seek to sue the business for the mistake that resulted in them suffering economic losses. Errors and omissions insurance would then cover some or all of the costs that the professional organization or business might have to bear due to their error or omission.
It is important to note that error and omissions insurance policies generally do not cover any other negligent acts besides errors and omissions. For example, errors and omissions insurance doesn’t cover negligent acts that result in physical injury to a customer, such as a slip and fall case. Negligent acts that result in physical or property damage to a customer are usually covered by commercial general liability policies.
In fact, errors and omissions insurance policies routinely include an exclusion for bodily injuries that result from negligence within the policy itself. This is based on the theory that coverage for property damage or bodily injury should be confined to a commercial general liability policy under the assumption that a service provider’s liability for bodily injury shouldn’t arise from mistakes in providing services.
Thus, commercial general liability policies cover damages for bodily injury, while errors and omissions insurance policies cover other economic damages.
What Are Some Errors & Omissions Claims Examples?
Once again, errors and omissions insurance is an insurance that protects against losses not covered by traditional liability insurance, such as legal claims for negligent acts, errors or omissions committed during business activities that result in a financial loss.
The following is a list of errors and omissions examples that may arise which trigger coverage from an errors and omissions insurance policy:
- An accounting firm that provides inaccurate advice to their clients resulting in them losing money;
- A real estate brokerage firm that forgets to include important details about a home that results in the buyer or seller suffering economic harm;
- A marketing firm that provides inaccurate advice that results in a client losing money on their product or service;
- A tax preparation firm that makes a calculation error which results in penalties being pursued against their customer; and/or
- A construction or design firm that builds something incorrectly or paints a room the wrong color, which results in a breach of contract action being filed against them by their client.
Who Uses E & O Insurance?
As mentioned above, there are numerous business and professional organizations that utilize errors and omissions insurance.
Errors and omissions insurance is frequently utilized by and recommended for the following list of professional organizations and specialists:
- Real estate agents or brokers;
- Property appraisers;
- Architects and engineers;
- Interior design or construction firms;
- Software and website developers;
- Information technology specialists;
- Insurance agents;
- Tax preparation firms;
- Marketing firms; and/or
- Accounting firms.
It is important to note that the above list is not an exhaustive list of professional organizations or businesses that should utilize errors and omissions insurance. In fact, E & O insurance costs are often much less than the economic losses that may be incurred by a business that is sued by a customer as a result of their professional negligence.
As far as errors and omissions insurance costs, the exact costs of the insurance plan will depend on a variety of factors, such as:
- The size of the business, i.e. the number of employees that expose the business to business litigation risks;
- The amount of revenue that is generated by the business;
- The type of industry that the business is involved in;
- The contracts that are utilized by the business and the type of legal exposure that the contracts leave on the business;
- The location or locations of the business; and/or
- The history of legal claims that have been filed against the business or organization;
What Are Some Common Legal Issues Associated With Errors and Omissions?
As mentioned above, errors and omissions insurance does not cover all of the legal claims that may arise against a business. As such, one of the most common legal issues associated with errors and omissions is the policyholder disputing the coverage by the policy provider.
Another common pitfall involved with errors and omissions policy insurance is called a “Gap in Coverage”. A gap in coverage occurs when the E&O insurance coverage has expired but the professional organization or business has failed to renew their insurance coverage.
Importantly, during a gap in coverage, the business and their employees are not covered by the insurance and are therefore exposed to professional liability during that time. Gaps in coverage are a major problem for business owners and operators, as many professionals might not know that they are operating under a gap in coverage.
Other common legal issues associated with errors and omissions policies can include breaches of insurance contracts, fraudulent policy contracts, or frivolous claims being filed by clients of a business or professional organization in attempts to secure a damages award out of the business’ insurance policy.
An errors and omissions insurance attorney can be helpful in reviewing the terms and conditions of an errors and omissions insurance policy in order to manage a business or professional organization’s expectations. Then the business owner or professional organization may seek additional insurance protections to cover them from other business litigation risks.
Do I Need a Lawyer for Help With Errors and Omissions Laws?
As can be seen, for businesses and professional organizations owners, it is very important to have a good understanding of what an errors and omissions insurance policy is, as well as what it covers. As such, if you have any questions or legal disputes regarding an E&O insurance policy, it is in your best interests to hire an experienced insurance lawyer.
An experienced liability lawyer can help you determine what policy is best for your business. Further, an attorney will also be able to represent you in court, should legal action become necessary.