Your business can run the tightest ship in town, but it just takes one allegation of wrong doing directed at your company that can sink you financially and/or your reputation at the same time.
With that being the case, Errors and Omissions coverage (also known as professional liability insurance) can be invaluable for your business. If you don't have the right E&O policy in place, what will you do if your business finds itself fending off an allegation?
According to the National Association of Professional Agents (NAPA), one of every seven professionals will be named in one form or another of an E&O claim at some moment in their careers. Making matters worse, the average expense to settle a claim exceeds $16,000.
When purchasing an E&O policy, there are a number of things to consider:
- Make sure you review the declarations page which defines the items covered by the policy. In the event the policy is not correctly worded, a claim not mentioned within the services defined in the policy suddenly becomes your responsibility, not that of the insurance carrier. You could find yourself having to defend and settle costs despite having an E&O policy.
- Keep in mind these plans are claims-made policies, meaning a claim needs to be made during the policy period and take place following the retroactive date. In the event a claim is made during the policy period, however it took place before the retroactive date, the claim will be turned down.
- Look to choose an E&O policy limit that will offer adequate defense costs in the worst of situations. It is important to balance the exposure versus the expense of the insurance.
- Check the exclusions on the policy and how they can impact your coverage. Among the possible exclusions are -- claims from any fraudulent, criminal or knowingly wrongful acts committed by or at the direction of the insured; bodily injury, illness, disease or passing of any person; damage or destruction towards any tangible property; prior or pending litigation as of the start date of the policy.
- Finally, look at both the policy premium and deductible, along with the carrier's financial strength.
As you research for E&O coverage with different companies, review their track record, any history of complaints; see if you can find others who have worked with them. It is wise to comparison shop when looking for E&O coverage; having an attorney review the policy is also advisable.