Have you ever made a mistake in your profession or ever had a less than satisfied client? I have, and I think everybody has had such an experience someday. But professional errors can cost professionals, and businesses face massive lawsuits, which is precisely when you should buy insurance. So, you are at the right place if you are thinking when should I buy errors and omissions insurance?
Let’s first understand what an E&O insurance policy is.
What Is Errors And Omissions Insurance?
Errors and Omissions Insurance, commonly called E&O insurance, protects your business from hefty lawsuits that can cost you millions of dollars in legal costs.
We all can err. Thus, every professional from every industry must have an E&O insurance policy, for it is the only cover from professional mistakes that they can leave in the project.
This insurance safeguards you if accused of professionally negligent or erroneous work. Even if you miss a deadline due to COVID-19, this policy will cover you! That is why it is also known as Professional Liability insurance.
Why Do You Need An Errors and Omissions Insurance
#1: It Provides Protection
You need E&O insurance to protect yourself in case of a lawsuit filed by your client if he thinks that your services caused him a financial loss.
The insurance policy will pay for the lawsuit settlement cost, judgment cost, and any legal cost you incur due to the lawsuit filed by your client against you.
#2: It Might Be Mandatory In Your Industry
Federal laws have made E&O insurance mandatory for many professions.
For example, a doctor needs medical malpractice insurance, and an attorney needs legal malpractice insurance to practice their professions.
#3: Clients Might Demand A Policy
Contracts often need small businesses to have E&O Insurance as a part of their contract. A policy assures your client that they are protected if the worst happens and do not like your work quality.
When Should I Buy Errors And Omissions Insurance?
Like we mentioned earlier, you might need E&O insurance because it is mandatory for many professionals to carry one to practice. But many licensing bodies and federal laws of some states have made it necessary for even small businesses to buy one.
However, E&O insurance is a good idea, even if it is not mandatory to get this insurance in your area. Some professionals that require it are given below.
#1. Healthcare Workers
It is not uncommon for health professionals to face lawsuits by grieving patient families. Paying for all these lawsuits can make them go bankrupt.
Thus federal laws have mandated healthcare workers to buy medical malpractice insurance and be ready for the worst!
No attorney can win every case it takes up. But sometimes, they do get sued after a lost case.
Most state bar associations make it mandatory to carry attorney law malpractice insurance. They are also required to inform their clients if they have the insurance or not.
#3. Real Estate Agents
Often after the sale, buyers file lawsuits against real estate agents saying that they boasted about the property to sell it to them.
Thus, carrying an E&O Insurance is a good idea for such and more cases. You never know who might file a lawsuit when!
Federal agencies have made it mandatory for contractors to have an E&O insurance policy.
Say you are a construction contractor. A missed deadline or an unsatisfactory project can result in a million-dollar lawsuit! So, beware are buy a policy well in time!
Even a tiny mistake in the excel sheets can cost an accountant’s client financially, who may then go forth to file a lawsuit.
#6. Small Businesses
The current pandemic situation is sad and has increased uncertainties and difficulties for businesses. On top of this, a lawsuit can put a question mark on their business continuity plans.
This is why small businesses need E&O insurance. Have a look at the below-mentioned examples to understand better.
- If another company feels that your design is similar to the design their web designing company made, they can sue you!
- An IT company can be sued if the security system they provided to their clients gets hacked.
- If one of the architects of an architectural business makes faulty blueprints of a house, the firm can be sued for negligence.
What Does Errors and Omissions Insurance Covers?
Suppose an accountant makes a small mistake during bookkeeping that costs significant financial loss to its clients. The clients can sue the company on account of misrepresentation in data.
#2: Missed Contractual Obligation
If a project manager misses a deadline and the missed deadline causes financial loss to the client, he can get sued!
A doctor operates on a patient, but it dies on the operation table. It could have been an unintentional mistake, but the client can still file a case on the grounds of negligence. Moreover, the lawsuit can still get decided in favor of the plaintiff.
#4: Undelivered Service Or Mistakes
The results of your services may be different from what the clients expected of you. It is also possible that you are not perfect every time, and a simple mistake or under achievement can happen at any time.
What Does E&O Insurance Not Cover?
E&O insurance does not cover bodily injuries or property damages. It also does not cover criminal actions and malicious intentions of individuals. If your mistake were intentionally made to harm another person, your E&O insurance wouldn’t be able to save you.
E&O insurance also does not cover accidents that occurred before you bought it.
In A Nutshell…
E&O insurance protects you if you are a professional who makes money from their expertise. Mistakes are natural. They happen even to perfectionists. Thus, it is better to take precautions and be safe from uninvited lawsuits.
I see E&O insurance as an investment that saves you from lawsuits that can cost you millions of dollars by paying a small premium.
So, I wrap up this article on when should I buy Errors and Omissions insurance here. Let me know if you have any suggestions or questions.
So, have you bought Errors and Omissions Insurance? Is it working fine for you? Let me know in the comment section below.
I am all ears and waiting!