Errors and omissions insurance, also known as professional liability or E&O insurance, is designed to protect you against a client’s claim of negligent acts, omissions or errors you make while performing professional services. These policies cover legal defense costs and any settlement paid to clients in the event of a covered case.
While E&O insurance has saved many a business from bankruptcy, it’s important to understand that E&O insurance policies often have specific exclusions. Insurance companies will not defend or pay costs for claims that are excluded from their policy coverage. This includes intentional wrongful acts and illegal acts as well as business disputes. Nobody wants to be surprised when a customer files a lawsuit against them. It is important to fully understand what situations are exclusions in your policy.
Common E&O Policy Exclusions
Below are some common E&O exclusions. This list does not necessarily refer to any particular insurance company’s policy. One policy may cover some of the items, but not others.
General professional liability insurance policies don’t cover:
– Intentional violation of any law, regulation or statute, or dishonesty
– Any services you may provide under the name or charity of another business, charity, or organization not listed in the policy.
– Liability to any insured under the policy for damages or injuries sustained by or on behalf of another insured (i.e. The policy won’t be able to respond if your partner sues either you or your company.
Copyright, trademark or patent infringement may be available on certain policies
– Bodily injury to any person, even sickness or death (there might be coverage under general liability insurance).
– Damage to property or loss of usage resulting from such damage (general liability coverage may be available).
– Libel and slander may be possible on certain policies
– Illegal discrimination
– Violations to securities laws
– Humiliation and imprisonment, wrongful entry or eviction, invasions of privacy, malicious prosecution (may also be available under some policies).
– Extraordinary liability assumed in contract (except where the liability would have been there even without the contract).
– Inability to obtain, provide, advise, or maintain financing or any other monies (except if you have a financial advisor/investment advisory policy).
– Punitive penalties, fines or damages
It is important to be able to identify the professional liability risks that your company faces and to search for policies that address most of them. Risks that cannot be covered or aren’t covered with insurance must be accepted and managed. Make sure you are aware of your risks.
Filling in the Gaps
Claims that are not directly related to your performance of professional services are not covered by errors & omissions insurance, but there are ways to fill in some of those gaps. To mitigate certain types of exposures, you may be able purchase other types of insurance.
For example, a commercial policy of general liability covers property damage or bodily injury. This insurance is often combined to insure against theft or damage that may occur to your business or client’s property while it is under your custody, control or care.
You might also want to consider commercial dishonesty or fidelity bond coverage for employees. This coverage provides protection if an employee steals money, equipment, or assets from you or your clients.
Insurance is only part of a comprehensive strategy for managing risk. To mitigate your risk exposure, you might need to consider other strategies.