You’re an experienced small business owner who takes pride in providing quality services to your clients—but even the most diligent professionals can have an off day. Luckily, there is coverage available to ensure that honest mistakes don’t turn into financial disasters.
What is E&O Insurance?
Also known as Professional Liability Insurance, E&O Insurance is there to protect you in case a mistake made by you, or one of your employees, leads to damages to a client or other party. While policies vary widely from carrier to carrier, and from business type to business type, most E&O policies will provide coverage for defending a lawsuit and paying damages you are found responsible for.
What does E&O cover?
Carriers write E&O policies to fit specific industries, making these policies, and the events they cover, particularly diverse. Depending on your area of business, covered events may include accidental copyright infringement, negligence, data breeches, work that falls behind schedule, malpractice, and much more. Most E&O policies cover court costs, legal fees, settlements, and judgments. These policies do not cover every potential source of liability; most exclude personal injury, punitive damages, or intentionally malicious acts.
A couple examples
A freelance graphic designer creates a logo for an emerging company called Widgets Inc. A month later, after Widgets Inc. has purchased signage, printed business cards, and taken other steps to brand themselves with their new logo, they receive a cease and desist letter from Sprockets Corp. alleging that the new Widgets Inc. logo is too similar to Sproket’s own. Through a simple mistake, the graphic designer has caused Widgets Inc. to spend thousands of dollars on materials they are now unable to use. If our graphic designer carries an E&O policy she will be able to file a claim and cover the costs arising from the snafu, rather than paying out of her own pocket.
A real estate agent lists a home and facilitates a successful sale. Months later, the buyers file a lawsuit. It turns out that one of the property lines of the house in question is disputed by a neighbor. While the agent was unaware of this dispute, he is now being accused of failing to disclose the dispute at the time of sale. If the agent carries E&O insurance he can expect costs associated with defending himself in court, as well as any damages awarded to the plaintiffs, to be covered by his policy.
Who needs E&O insurance?
Simply put, anyone who owns a business—including independent contractors and other solo ventures—that exchanges services for money should strongly consider carrying an E&O policy. This group includes the majority of businesses large and small, including,
· Real estate agents
· Creative freelancers
· Event planners
· Medical professionals
For some of these professions, E&O insurance may be a requirement for licensure. Be sure to check the requirements in your state and make sure your coverage complies with all regulations.
Seek professional advice
You don’t need to be an insurance industry insider to guess that the coverage needs of a general contractor and those of an accountant are going to be radically different. The diversity of businesses that E&O policies are written for makes industry standards for these policies difficult to pin down and may make purchasing coverage particularly confusing to consumers. One thing can be said for certain: if you provide services directly to clients, then an E&O policy can provide critical coverage for your business. Moreland Insurance’s independent agents will be happy to help you evaluate your coverage needs and find the policy that is right for your industry, your level of exposure, and ultimately, your business.