What is E&O Insuance?
Errors and omissions insurance, commonly referred to as E&O, is professional liability insurance for companies and individuals. It covers any company or individual in the event of an error or omission made while servicing and/or selling products. If a client feels that a professional has provided services that did not yield the expected or promised results, that client has the option to take legal action against the professional or company. Errors and omissions insurance covers the judgments, settlements and defense costs incurred when a client takes legal action against a professional or company. Even if the client’s case has little merit and the allegations against the individual are groundless, proving a professional’s innocence can be costly enough to end even the healthiest business.
Who Need Errors and Omissions Insurance?
Individuals or businesses should purchase errors and omissions coverage as soon as they have errors and omissions exposure. Any professional who provides a service for a fee is a candidate for Errors and Omissions insurance. Errors and omissions coverage is can provide a solid foundation for any business’ portfolio and is usually purchased before a business is launched or when a business is beginning. From doctors and lawyers to event planners – if a professional charges a client for their services, they have an errors and omissions exposure. In every profession, there is potential for error; even the most reputable operations experience the occasional snafu. Other less-obvious industry groups that have errors and omissions exposure are advertising agencies, air quality consultants, auctioneers, alarm monitoring services, book publishers, broadcasters, credit bureaus, data processing services, employee leasing services, governmental consultants, graphic designers, hotel consultants, polygraph operators, software developers, trustees, and web designers.
Our Business is Very Careful, Do We Still Need E&O Coverage?
Even the most cautious professionals and businesses are prone to the occasional mistakes. The painful truth is that mistakes, no matter how innocent, can cost a small fortune to rectify. A professional or business that is operating without errors and omissions coverage is taking an enormous financial risk. Even with general liability insurance, the monetary losses resulting from a misplaced shipment or medical malpractice are not covered. Errors & Omissions insurance protects businesses and individuals from embarrassment and bad reputations as well as losing clients.
What Does an E&O Policy Include?
There are three major components of an errors and omissions insurance policy: the prior acts date or Retroactive Date of Inception, an in-force policy, and an extended reporting policy. These three components can be combined to provide very comprehensive coverage for any professional with errors and omissions exposure.
The prior acts date or Retroactive Date of Inception (RDI) is not offered with all Errors and Omissions policies, but it is a key part of a comprehensive insurance plan. The retroactive date of inception refers to how far back into an individual or company’s career the coverage will extend. For example, if an agent is sued for an event that happened prior to his purchase of Errors and Omissions coverage, but the event occurred after his policy’s retroactive date of inception, then the agent will be fully covered for any expenses incurred as a result of any legal action.
The function of an Extended Reporting Period (ERP), commonly referred to as “tail” coverage, is to provide coverage for an individual or company no longer in business. The extended reporting period does not cover any new business; it will only apply to claims presented for activities that occurred between the policy’s prior acts date and before the termination date of the last in-force policy. The extended reporting period can typically be purchased for one to five years of coverage. This is for the convenience of not purchasing new coverage every year. When changing from one errors and omissions policy to another, if the new policy does not include a retroactive date of inception, an individual or company can purchase additional “tail” coverage for the existing policy.
All errors and omissions policies are referred to as “claims made”, meaning that coverage is triggered if a claim is made for an error or omission during the policy period. When purchasing E&O, it is crucial to avoid “gaps” in coverage. Even a one-day gap between policies can result in the loss of years of prior acts coverage.
All American Brokers is pleased to provide access to a truly affordable Errors and Omissions program.