Area of Law: Business Law
Answer # 0259
Errors & Omissions (E&O) insuranceRegion: Ontario Answer # 0259
What is Errors & Omissions insurance?
Also referred to as Professional Liability insurance (PLI), E&O insurance protects professional individuals or businesses if they are sued by a client who suffered financial losses or damages as a result of the individual’s or the company’s errors, omissions or negligent acts while conducting business.
E&O insurance covers:
- the cost of defending against a negligence claim, and
- if they lose, damages awarded or settlement costs.
What is the difference between E&O and D&O insurance?
The main difference between E&O and D&O (directors and officers liability) insurance is the type of acts covered. E&O insurance is generally concerned with the product or service that the company offers, while D&O insurance is focused on management decisions. For example, a bank employee’s failure to complete mortgage documents could become an E&O claim. However, the president of a bank defaming a mortgage broker in a media interview will most likely result in a D&O claim.
Who needs E&O insurance?
Directors and officers of private and public companies, and non-profits, as well as independent business owners and contractors can purchase E&O insurance. Policies can be written for many types of businesses in a variety of industries and professions, including:
- business consultants
- financial advisors
- private investigators
- mortgage brokers
- financial services (banks and other lending institutions)
- IT consultants and website developers
- health services
- construction contractors
- arbitrators / mediators
- business and professional associations
- interior designers
- home inspectors
- insurance agents and claims adjusters
- employment agencies
- personal counselors
- travel agents
- collection agencies
- home inspectors
Is E&O insurance mandatory?
E&O insurance is mandatory for many professions, such as:
- practicing lawyers,
- medical professionals (known as malpractice insurance),
- contractors hired for government projects (in most cases, a contractor will not be hired unless they carry E&O insurance), and
- real estate agents.
It is advisable to check with your licensing board or a lawyer to confirm if it is mandatory for your industry. However, even if E&O insurance is not mandatory in your industry, it still may be a good idea to have coverage because it:
- protects the professional from having to pay for damages caused by errors and omissions, and
- enables the client (or other third party) to obtain compensation for their loss.
What types of situations does E&O insurance cover?
There are many examples of when, in the course of doing business, a company or individual could find himself or herself responsible for the financial loss of another person or business.
For example, a client could suffer damages from:
- negligent acts, or errors or omissions in the performance of professional services (or the failure to perform necessary acts),
- critical information provided being incorrect, or if it was not provided,
- the company or employee violating someone’s privacy,
- breach of an implied covenant of good faith and fair dealing,
- something the company or employee said or wrote that was considered to be defamatory, and
- advice given being incorrect.
How much does E&O insurance cost?
The terms of each E&O policy as well as the cost is different because the insurance coverage is based on many factors, including the type of industry or work performed by the professional. Policy premiums for $1 million dollars of coverage can range from a few hundred dollars to thousands of dollars a year.
Speak with an insurance agent or broker to discuss what coverage is right for your business.
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