Who Needs Errors and Omissions Liability

June 30, 2018

 
 

Also known as E&O, errors and omissions is a type of insurance coverage that falls under commercial liability coverage. This type of insurance policy is meant to protect your business from any acts of negligence or failure caused by your business to provide either the kind of service or advice the customer expects.

Sometimes, E&O coverage is also referred to as malpractice or professional liability insurance.

Certain business professionals such as computer consultants, physicians, and architects, presents themselves as experts in their fields. Individuals practicing in these fields are expected to meet a certain standard that is maintained in their respective fields.

Even though the standards vary from one profession to another, it is generally expected that every professional will act in a reasonable manner just as other people with the same level of education and experience.

Basically, any business that provides counsel or service in exchange for a fee is prone to suffer from professional liability exposure.

For instance, consider the following scenario:

Imagine a situation where an individual (let’s call him James) owns a computer software development company (Limitless Programming Agency) and provides programming services to businesses in various fields. Each program that is built by Limitless Programming Agency is customized for a particular client. Limitless Programming Agency is covered under a regular general liability insurance policy but does not have an errors and omissions liability coverage.

About 1 year ago, Limitless Programming Agency was hired by a restaurant chain; Peekers, to create an invoicing program for all their suppliers. After 6 months of operating the software, Peekers files a lawsuit against Limitless Programming Agency arguing that the software they bought is filled with bugs as Limitless Programming Agency failed to sufficiently test the program and that it ended up costing Peekers thousands of dollars.

Peekers lawsuit is not covered under Limitless Programming Agency general liability policy. This is because many of the conditions don’t apply. For instance, Peekers has suffered a financial loss, and is not seeking damages for property damage, personal and advertising injury, or bodily injury.

Since the alleged financial loss was not caused by an occurrence as is defined under the general liability cover, Limitless Programming Agency will have to pay out of pocket since they have no errors and omissions insurance cover.

In addition to paying for damages, James’ company will have to pay for any legal expenses they incur.

Types of E&O Policies

E&O policies vary from one profession to the next. For instance, lawyers errors and omissions policies are designed for attorneys, while dentists have dental malpractice policies designed specifically for them.

E & O Policies Features

Even though E&O insurance policies are not the same across different professions, you can expect some features to stay the same.

Some of the common features you might expect include:

  • Claims-Made
  • Insurance Agreement
  • Defense
  • Exclusions
  • Limits and Retention

For more comprehensive information on everything you need to know about errors and omissions policy covers, get in touch with us.

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