Errors and Omissions Insurance: What You Need to Know
December 16, 2021
There’s no denying it: Humans are imperfect. Some may argue our imperfections are what make us beautiful, however they also cost us time, money, and pain – particularly when they impact our professional lives. None of us are free from making mistakes at work. Even some of the biggest names in business have made errors and faced the consequences.
And what’s worse is that these errors can end up costing us a whole lot more than we’d like. Just look at some of the ways human error can cost insurance agencies big bucks. Lucky for us, we know we’re not perfect and have developed a way to mitigate the risks that come with simply being human through error and omissions (E&O) insurance.
What is E&O insurance?
E&O insurance is a form of professional liability insurance. Companies with E&O coverage are protected against the costs of lawsuits or settlements that arise in the event of mistakes made when providing their professional services. E&O insurance protects businesses from more than just errors and omissions. It also covers claims of negligence, misrepresentation, and inaccuracy.
Who and what does E&O insurance cover?
An E&O policy will generally cover the business owner along with all salaried and hourly employees of the company. Most policies also extend to provide coverage for any subcontractors you have working on behalf of your business.
If an unsatisfied customer sues your business over a mistake you made in the service you provided, E&O insurance can help cover your court costs. This includes the costs of paying your attorneys, reserving a courtroom, and putting together your defense. If you decide to settle out of court, which can still cost you tens, or hundreds of thousands of dollars, E&O coverage can also help cover the cost of settlement. Some common E&O coverages include work mistakes, oversights, and negligence.
Work mistakes and oversights
Even the smallest mistake or oversight on your end could end up costing a client. For example, imagine you work as a wedding planner and accidentally miss quote the price of a venue. The couple books the venue only to realize your mistake too late and now has to pay thousands to either cover the higher price or cancel and book somewhere new. It was an honest mistake, but that might not stop bridezilla from taking you to court for ruining the happiest day of her life.
In the insurance business, this might translate to an incorrectly written policy that ends up not covering something you assured your client it would. When a claim occurs and the client is left holding the cost, your E&O coverage might just save the day.
Slightly different than an error is an oversight or omission, which can be chalked up to negligence in a legal sense. Imagine this scenario: you’re an insurance agent with a very wealthy client who has millions of dollars in assets worth protecting. This client really should have an umbrella policy, especially since he now has a 17-year-old son who’s starting to drive. If you think a client could really benefit from an umbrella policy, but you neglect to propose it to them, or if you fail to propose it often enough or strongly enough, and then they end up with a claim where someone is suing them for more than their regular liability coverage limits, they could accuse you of negligence.
The best way to prevent this type of scenario is to make sure you’re advising clients to purchase the insurance coverages they truly need, and to document each time you make a proposal and they decline the level of coverage you recommend. The next best way to protect yourself is with a strong E&O policy that will come to your defense if something like this does happen.
Who needs E&O insurance?
If you work in a business that provides professional service to customers, you need E&O insurance. E&O coverage is especially important in helping small businesses protect themselves from financial loss. No matter how big or small the company, here’s a list of industries that should carry E&O insurance:
- Insurance agencies and brokerages (of course!)
- Accounting & Bookkeeping
- Real Estate
- Wedding planning
- And More!
What isn’t covered by E&O?
Like many insurance coverages, E&O cannot cover claims from events predating the start of your policy. While E&O is a type of liability insurance, it does not cover every type of liability claim. For example, E&O will not cover claims of:
- Fraud – dishonest or illegal activities performed by individuals or companies for financial gain
- Intentional wrongdoing – purposefully breaking the law or deceiving customers
- Employee accusations – accusations of sexual assault or hostile workplace aginst/by employees
- Property damage – damage to a client’s property caused by your business
- Theft – Any stolen property or assets
How to reduce the chances of an E&O claim
While there’s no way to eliminate human error entirely, there are steps you can take to reduce it. As a tech company, we highly recommend using technology to take the human error factor out of your business processes. In the meantime, here are some simple steps you can take today to help reduce your risk of E&O exposure.
- Be transparent
One of the best ways to reduce the chance of an E&O claim is to remain transparent in all business processes. Keep employees and clients up to date on project deadlines and progress. Transparency can help build trust between you, your employees, and your clients. Trust us, it’s better to tell a client when you’ve made a mistake or missed a deadline rather than have them find out on their own when the truth comes to light.
- Leave a paper trail*
Another way businesses can avoid E&O claims is to leave a paper trail. Having clear, dated documentation of all communication between your company and your clients can help clear up any disagreements over what has been promised. Paper trails can also be helpful in keeping employees on track and ensuring a deadline is not missed.
*Not literally. Please do not use paper. We suggest modern technology such as a Customer Relationship Management system (CRM) among many other options.
There’s no complete solution to human error. At some point in your career, you’re going to make a mistake either big or small. Investing in E&O insurance is one way you can mitigate the financial risks of human error.
If you’re looking for other ways to reduce the costs of human error at your agency, AgentSync can help! AgentSync simplifies and automates everything from producer onboarding to license renewals to carrier appointments. See AgentSync in action today.