Errors & Omissions – Why do I need it?
Errors & omissions (E&O), also known as professional liability or medical malpractice in the health industry, covers liability arising out of negligent acts in rendering, or failing to render, professional services. Professionals are people who hold themselves out as having a special skill, knowledge or experience. Most people think of lawyers, doctors, accounts, architects, and engineers when they think of professionals. However, professionals can also include consultants, advertising agencies, printers, information technology specialists (software developers, web hosting companies, etc.) and many more individuals and professions. If your business provides a service for a fee, then you have an E&O exposure. If you do not have E&O insurance, the defence and settlement costs could bankrupt a company or significantly affect future operations.
There are no standard policy wordings for E&O insurance. A doctor has different exposures from an accountant who has different exposures from a computer programmer. Most E&O policies will cover judgements, settlements and defence costs. They are also written on a “claims made” basis which means the claim must be made and/or reported within the policy period.
E&O policies have a retroactive date which is usually the effective date of your first E&O policy, assuming you have not cancelled your E&O policy. If a claim arises out of acts that have occurred prior to the retroactive date, there is no coverage. In a sense, the farther back the retroactive date, the more coverage you have. It is important to note that if you cancel your E&O policy, and purchase a new E&O policy at a later date, your retroactive date will be the effective date of the new policy.
Some E&O policies have a discovery period. A discovery period is a provision that allow the insured a certain period of time after cancellation of the policy to report losses that occurred during the policy period. An example would be a consultant who has retired and has let the policy lapse. If the discovery period provision in the policy is 1 year, the consultant may report losses after retirement that occurred during the policy period. Depending on the business, industry, or profession, the length of the discovery period varies and there may or may not be a additional cost.
E&O costs vary greatly depending on the size of the business, the exposure, and the limits required. Limits can range from $100,000 to $2,000,000 or higher. E&O quoting usually involves an application, supplementary questions if necessary, resumes of the principals, and sample contracts.
Errors & Omissions should not be confused with general liability (Commercial General Liability) which covers property damage and bodily injury to third parties as a result of your negligence. A slip and fall would be a common example of a claim that would fall under a general liability policy.
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