The Importance of Errors and Omissions Insurance Explained
You try to run your business the right way. Unfortunately, mistakes do happen, and if they do, they can be very costly for your business without the right protection in place. Errors and omissions insurance helps protect your business from being sued by a customer or client for mistakes or omissions in your services. Also known as E&O insurance and professional liability insurance, this coverage helps cover financial loss, legal fees and defense costs related to a lawsuit.
What is Covered by E&O Insurance?
If your business faces a lawsuit related to the services you provide, errors and omissions insurance can help cover:
- Attorney fees, which can easily $100 to $200 an hour, or more! Because liability cases can last several months or even years, legal costs for small businesses can average $3,000 to $150,000. Even if a case doesn’t go to court, you may still have to pay an attorney an average of $5,000 to respond to the claim and provide legal counsel.
- Court costs, which include reserving a room where the hearings will take place. If it’s a long case, your court costs can easily total thousands of dollars. You may also need to pay for expert witnesses to provide medical and technical evaluations.
- Administrative costs, for gathering documents, such as:
- Medical Records
- Business Receipts
- Customer Waivers
- Written Testimonies
- Business Contracts
- Employment Records
- Invoices, and More
In today’s world of streaming content with services such as Netflix, Amazon, Tubi and others, it’s never been more important to “cover your assets!” Questions about streaming service coverage? Contact Us to find out what type of coverage you need and how we can help!
You may have to pay court staff, like court reporters who transcribe what’s said, along with office managers, receptionists, legal assistants and court reporters to document this information.
- Settlements and judgments that may be awarded to the person suing you if you lose the case. These costs can range from a thousands to millions of dollars. Without errors and omissions coverage, that can be enough to shut most business’ doors for good.
If someone makes a claim against your business, and you don’t have E&O coverage, you could have to pay these costs out of pocket. If you do have E&O insurance, you can rest easy knowing your policy helps cover most of these costs, even if temporary workers or contractors were the ones who made the mistake.
What Errors and Omissions Insurance Typically Does NOT Cover
Errors and omissions insurance is a smart investment for your business, but it doesn’t cover everything. For instance, it WON'T cover:
Illegal acts and purposeful wrongdoing - if you intentionally break the law or deceive your customers. Let’s say a client hires your contracting business to update their kitchen. They ask you to use a certain type of wood, but you use cheaper imitation materials and still charge them full price. If the customer finds out and sues you, your E&O policy won’t cover it.
Patents, trade secrets and intellectual property - taken without permission. If someone sues your business for stealing what belongs to them, your E&O insurance policy won’t cover your legal costs.
General liability claims - if your business caused an injury or property damage. For example, if a customer hurts themselves in your office and files a lawsuit against you. To protect yourself from these claims, you’ll need a general liability insurance policy.
Employee claims - for employment issues or work-related injuries and illnesses. If a current or former employee sues you for wrongful termination or harassment, employment practices liability insurance would help cover your legal costs. Workers’ compensation insurance gives your employees benefits to help them recover from work-related injuries or illnesses.
Why Do You Need Errors and Omissions Insurance?
An errors and omissions claim can put your entire business at risk. Even if the person suing your business drops their lawsuit, you still may have to pay thousands of dollars in legal expenses. If their claim goes to court, your expenses, settlements and judgments can reach into the millions. Without errors and omissions insurance, these costs may have to come out of your business and personal assets.
Who Needs E&O Insurance?
Nearly any business can benefit from E&O insurance, but certain businesses are required to have it. Legal and medical professionals, for example, need to carry malpractice insurance, which is another term for E&O insurance. Other professionals that should consider getting coverage include:
- Attorneys and law firms
- Accountants, financial institutions and brokerage firms
- Advertising and media firms
- Barbershops and hair salons
- Cultural organizations, including museums and galleries
- Educational businesses, like schools and colleges
- Engineers and engineering firms
- Marketing firms
- Massage therapists *
- Medical offices and healthcare facilities
- Printing and publishing companies
- Real estate professionals
- Teachers and educators (in private practice)
- Veterinary offices and pet groomers
- Yoga instructors *
- And More
* Important Note to Massage Therapists and Yoga Instructors: Your industries have very specific needs! Let Insured Production help to protect your unique service business needs.
How Much Does Errors and Omissions Insurance Cost?
There’s no one-size-fits-all E&O policy, since all small businesses are different. Errors and omissions insurance costs can vary because they’re based on factors like your business’ size or claims history. Remember, no matter what you pay for E&O insurance, the bottom line is that it is most likely much cheaper than a lawsuit.
How Much You Pay for Your Errors and Omissions Insurance May Depend on Several Factors. Your Costs Will Depend on the Following:
- Business risk, because the more risk you’re exposed to, the higher the cost of errors and omissions insurance.
- Coverage limits, because needing higher coverage amounts means a higher E&O insurance cost.
- Claims history, which can increase your errors and omissions insurance cost if you’ve had a lot of previous claims.
It’s important to work with an insurance company that has experience, and we’ve been helping small business owners for many years. We offer coverage to protect you from the unique risks your business may face.
Contact us for more information today! A staff member is happy to be of assistance.