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Errors & Omissions Insurance
Unmet client expectations, service errors, incomplete work product. Is your business prepared to face a claim alleging professional negligence?
Suppose a software company releases a product with coding errors that compromise a client’s security, leading to a data breach. Or an engineer makes a computational error which results in a deficient design. Or a consultant accidentally deletes critical business data, causing financial losses for the client.
There are countless scenarios where errors & omissions (E&O) insurance, sometimes referred to as professional liability or malpractice insurance, can be a critical coverage for your organization—but not all E&O policies are the same.
eSpecialty Insurance can help. Our efficient process delivers various proposals from leading competitive insurers, coupled with our expertise to assess risks and assist in selecting the optimal blend of comprehensive coverage and cost.
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Common E&O Exposures
Errors or Deficiencies
Errors or Deficiencies refer to mistakes, inaccuracies or shortcomings in the services provided by a professional that may lead to negative consequences for the client. These can include miscalculations, misinterpretations, or oversights that result in financial losses or other harm.
For example, a closing agent may miss a lien on a property, leading to an unexpected encumbrance on the property and significant financial losses.
Incomplete Work
Incomplete Work occurs when a professional fails to fulfill the agreed-upon scope of services or delivers work that lacks essential elements. This exposure involves not meeting the expectations outlined in a contract or failing to provide a comprehensive solution, potentially causing disruptions, delays, or financial losses for the client.
For example, an architect might be hired to design a building, but fails to include crucial structural elements in the plans—causing construction delays and additional costs.
Client Loss
Client Loss exposures occur when a client experiences financial or other types of losses due to the professional's actions, advice, or work. It could involve situations where the client believes the professional's negligence, errors, or omissions directly contributed to their adverse outcomes, leading to a potential legal claim or dispute.
For example, a lawyer might miss a critical deadline, causing the client to lose a legal case and suffer financial harm as a result.
Special Situations
Multiple Services
Some professionals are engaged in providing multiple services and will need an E&O policy designed to cover their services. For example, an accountant may also provide management consulting services.
Underwriters will need to understand the totality of services performed to properly underwrite and quote the business. And coverage should be reviewed to ensure the scope of services covers the breadth of services offered without problematic exclusions.
Tech E&O
Technology Professionals Errors & Omissions (Tech E&O) is not the same as Cyber Insurance. However, Tech E&O policies may incorporate comprehensive cyber risk coverage because of the difficulty in distinguishing between a professional negligence claim and a cyber claim for a technology firm.
Technology firms, both developers and users of technology, should consider Tech E&O to protect their organization.
Buying or Selling a Business
When a business is sold, the buyer and seller will need to come to an agreement on who retains responsibility for future E&O incidents and claims, and the applicable E&O insurance coverage. In an asset purchase, the buyer typically assumes no liabilities for events occurring prior to the sale and requires the seller to maintain a “tail” (ERP or extended reporting period) on their E&O to cover any future claims arising from past work. In an entity purchase, where the buyer takes over the company itself, the existing E&O policy may need to be adjusted or a new policy obtained by the buyer to cover both future operations and past liabilities.
While some E&O policies include an option for tail (ERP) coverage, there is a competitive market for standalone tail coverage from third-party insurers, often offering more favorable terms.
Questions about your special situation?
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E&O insurance coverage checklist
Risk management plays a crucial role in minimizing potential exposures, and many actions can be taken proactively to reduce errors & omissions exposures.
Policy Review
Comprehending the details of your E&O policy ensures awareness of the protection it provides and any limitations.
Tailor Coverage
Customize your insurance policy to align with the unique challenges and potential liabilities of your industry.
Update Limits
Periodically assess and update your coverage limits to reflect the evolving nature of your business and potential claims.
Train Your Team
Conduct regular training sessions for employees to promote a strong understanding of professional procedures.
Maintain Records
Keep meticulous documentation of client interactions, contracts, and service agreements, in the event of a claim.
Quality Control
Establish and enforce robust quality control measures to catch errors, and respond promptly to client concerns.
Trading Partners
Ensure vendors carry insurance and maintain processes to verify coverage. Clients may also require adequate insurance.
Seek Legal Guidance
Engage legal professionals to assist in drafting clear and comprehensive contracts to help manage client expectations.
Note: Insurance policies are not all the same. Some policies are more comprehensive than others, and some policies provide broader coverage in specific areas. In addition, each insured may have different exposures and coverage needs. We encourage you to read your policy and consult with an insurance expert such as eSpecialty Insurance.