YOU ASK:

What does errors and omissions insurance cover and how much does E&O insurance cost?

WE ANSWER:

Errors and omissions insurance covers just that - errors and omissions made by the insured professionals. Those who handle clients or provide services for a fee need E&O insurance to protect them from lawsuits arising from any mistakes they may have made that resulted in the client suffering from financial loss (such as a broker providing unsound advice and caused the client to lose money on a transaction). Other types of losses may be physical (i.e. a doctor botching an operation) or with regards to the client's reputation (i.e. software provided for the client malfunctioned and caused the client to lose vital customer information).

E&O insurance provides payments for

  • Court costs and putting up a legal defense against the lawsuit
  • Any settlements with the client
  • Any payments for damages after the lawsuit has been completed and the judge has ordered you to pay as compensation to the complainant

This will not protect against damage or loss to your own properties, or any liabilities with regards to a person experiencing bodily injury or property damage while he is on your office or business premises. It will protect you from mistakes you make as a professional.

Cost of E&O Insurance

It's really hard to give an average premium amount for E&O insurance because there are a number of factors that needs to be put into consideration:

  • Your own claims experience. How many claims have your practice made with regards to E&O liability? This will be factored into how your premiums will be computed. If you have previous claims, it will be helpful to show the insurance companies the measures you have taken to ensure that the error or omission that caused the claim will not be repeated in the future.
  • The nature of your industry. There are industries that carry an inherent risk of a large monetary loss for a client. For instance, a stock broker or a software design consultant can potentially cause considerable financial loss compared to a training consultant. Also included here would be the statistics on the number of claims made within the industry.
  • The state where you are operating. Some states regulate insurance rates while other states allow market forces to dictate pricing.
  • Company/practice's policies and procedures. The insurance company may also look into the kind of contracts you go into, your quality control measures, your policies and procedures. This may provide an indication of any potential professional liability risk you may face.
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