Errors And Omissions Insurance Coverage: What It Covers And Doesn’t?

Errors And Omissions Insurance Coverage: What It Covers And Doesn't?

Have you ever made a mistake at work? Probably you have! We all have! But sometimes our mistake results in financial and reputational loss to our clients and they might sue you. Errors and omissions insurance covers you in such scenarios. But exactly which scenarios? That’s why here is a whole article on Errors and Omissions insurance coverage!


What Is Errors And Omissions Insurance Policy?

As the name suggests, Errors and Omissions insurance covers you if you provide an erroneous service or advice to your client, resulting in a financial or reputational loss to them.

It is also called professional liability insurance and protects you from various lawsuits which may result from errors and omissions on your part.

For example, let’s say a chartered accountant commits a mistake while calculating the income tax return of a customer. The customer suffers financial loss due to the error and files a suit against the professional.

In this case, Errors and Omissions insurance will cover all the legal expenses and costs associated with the suit for the financial planner. This includes the cost of settlement or judgment also. Great, isn’t it?


What Does Errors and Omissions Insurance Coverage Include?


#1: Mistakes and Oversights

To err is human! Thus, if you unintentionally leave some mistake in the service or product you provide, and that mistake causes your client financial loss, you are in deep waters!

Your client can file a lawsuit against you. And you may end up spending a whole fortune on legal costs!

But having an E&O insurance policy can save you from the trouble! It covers mistakes and oversights in the product or service delivery!

For example, you are an accountant, and you upload the wrong data in the company’s accounts. This results in heavy loss to the company, and the company sues you! E&O policy covers such situations.


#2: Accusations of Negligence

You need not always be entirely wrong to attract a lawsuit against you! Negligence is also enough.

By negligence, I mean you have not delivered a mistake in the service, but it is not up to the industry standards!

For example, you are a digital marketer and promised to design a campaign to push your client’s website to the first page. But the campaign you created did not substantially boost the website. This comes under the category of accusations of negligence!


#3: Undelivered Services

You claim to deliver a service or product but fail due to unforeseen reasons. If the client files a lawsuit against you, you are protected!

For example, you are an advisor and promised a company that your strategy will drive them 30% profit that quarter. But it only reached 20% profit mark until that date. Now, if the company files a lawsuit against you for its losses, E&O Insurance covers you! 


#4: Missed Deadlines

If you promise to deliver your service or product until a specific date, you fail to! Your client can sue you if it causes financial losses.

For example, you are a chartered accountant and fail to submit your client’s IT return before the last date of filing returns. Now, since your client has to pay a hefty fine, it can sue you!

But again, E&O policy is your savior!

If you suffer from any of the above situations, your E&O policy will cover the following costs,

  1. Attorney fees: Fees can hike up dramatically depending on various factors. On average, you can expect to pay a total fee of $3,000 to $150,000!
  2. Court Costs: A suit involves many costs like paying for witnesses, reserving courtrooms, etc.
  3. Administrative Costs: You need to pay office managers and court reporters etc., for your defense.
  4. Settlements and Judgments: Cases often end up in either of these, and they can often amount to millions of dollars!

Note: Do remember to pay attention to whether you have a claims-made or occurrence policy. Because an E&O policy will only help cover your claims in three conditions:

  1. The incident occurs in the policy period
  2. The incident occurs in the extended reporting period
  3. Or lastly, the incident is covered by your retroactive date.


What Is Not Covered By Errors and Omissions Insurance?


#1: Illegal Acts Or Intentional Deceit

This insurance does not cover illegal acts like selling drugs, intentionally deceiving the customer, or breaking the law.


#2: Discrimination Or Harassment Of Workers

Another uncovered aspect is discrimination amongst or harassment of the workers at the workplace.


#3: Damage to The Client’s Property

This insurance does not cover you if you damage your client’s property while working there. You need a general liability insurance policy for these kinds of losses.


#4: Bodily Injuries

This insurance does not cover any bodily injuries, employee injuries, or illnesses. You need a workers’ compensation insurance policy for such lawsuits.

Lastly, Errors and Omissions Insurance does not cover events before the policy’s retroactive date and after the policy’s extended reporting period.


In A Nutshell…

Errors and Omissions insurance is a real savior. Legal costs of erroneous services pose a massive danger to the survival of any business. But thanks to error and omissions insurance coverage, professionals can confidently operate their businesses by covering these legal costs against any mistakes and saving money and time.

I hope you found the article informative and helpful. And if there are any queries, please drop them in the comments below. I am all ears!