Professional Liability is a type of insurance coverage designed to protect traditional professionals (e.g., accountants, attorneys) and quasi-professionals (e.g., real estate brokers, consultants) against liability incurred as a result of errors and omissions in performing their professional services. Although there are a few exceptions (e.g., physicians, architects, and engineers) most E&O policies cover judgments, settlements and defense costs. Even if the allegations are found to be without merit, thousands of dollars may be needed for defense. Such unforeseen costs can bankrupt a smaller company or individual and have a lasting effect on the bottom line of larger companies.
Who needs E&O insurance?
The best-known professionals who need E&O insurance are doctors, lawyers, accountants, architects, engineers, contract research organizations etc. However, advertising agencies to commercial printers, Web hosting companies to a wide variety of business consultants must consider their exposures herein. If you are in the business of giving advice to your client for a fee, you have an E&O exposure. You may want to consider what will happen if the service is not done correctly or on time, and it costs your client money or harms their reputation.
By not purchasing E&O a company is taking a serious financial risk. These types of losses are not covered under a general liability policy. As stated earlier, even if you are not at fault, litigation is both time consuming and expensive.
Most E&O policies are written on a “claims made” or “claims made and reported” form. This means that any claims must be made or, in some cases, made and reported, within the policy period. These policies have a retroactive date that becomes very important. Claims that arise out of acts committed prior to the retroactive date will not be covered. The farther back the retroactive date, the more coverage provided.
How much will this insurance coast me?
The premium you will pay is in direct correlation to the class of business, location, claims experience and gross revenue. This is the basis your insurance carrier will determine the exposure that exists.
In addition to a business specific application, an insurance company underwriter may request copies of standard contracts, a description of quality control procedures and documentation procedures, training procedures, etc.
Here are some steps you can take to mitigate claims:
- have a written contract with your client that spells out all the specifics of your arrangement
- make sure the noted contract is reviewed by council that is well versed in such arrangements
- Have quality control procedures in place and use internal and external audits to check them.
Please feel free to contact our office for more information. Anyone providing service to their clients for a fee should not be without this coverage.