Errors and Omissions Insurance

As a small business owner, you may have business liability insurance, which covers losses relating to property damage, bodily injury, and advertising injury. But general business liability insurance doesn’t typically protect you or your business from claims arising for a client lawsuit for negligent errors, omissions, failure to perform, or acts committed during your normal business operations that resulted in a client financial loss. Errors and omissions insurance policies, or E & O, protect the small business professional by shielding his assets, paying legal costs, and covering damages.


Why You Need E & O Insurance


Any small business owner who provides services to clients for a fee needs errors and omissions insurance. Real estate agents, electricians, plumbers, engineers, architects and many other small business owners and professionals also take out E & O insurance policies. An errors and omissions insurance policy is typically customized to meet the specific business or industry needs. That is, an E & O policy is written taking into account the inherent risks of a particular business.


Negligent errors and omissions can occur in practically any profession. For instance, what happens if a cake decorator misspells the name of an intended receiver? Perhaps, you’re a tax prepared who mistakenly claimed a deduction a client wasn’t entitled to and you’re being sued for penalties and interest. Maybe you are a real estate agent who sold a property without a proper title search and the deed is contested by the previous owner. In these cases, errors and omissions insurance is just what the small business owner needs.


What E & O Insurance Covers


In addition to covering client damage claims, most errors and omissions policies cover attorney fees, judgments, settlements and court courts. Even if the client allegations are unfounded, legal fees can quickly eat up a small business’s cash reserves. Because it is common for a small business professional to spend upwards of thousands of dollars on legal costs, defense costs are a substantial component of E & O insurance policies. This is true even if the professional wasn’t deemed to be at fault and the case was ultimately dismissed.


Lastly, E & O insurance ensures that there will be adequate funds to pay damages should you be deemed to have been negligent in providing a service. That said, all errors and omissions policies are unique, with coverage tailored to the risks of the business.