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Errors and Omissions (E&O) Insurance: What You Should Know

By Jarrod Heil

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Errors and omissions insurance may sound like a complicated policy that’s only fit for large-scale businesses, but that’s not true at all. It’s geared toward nearly every business that provides a service.

From small mom-and-pop-owned businesses to large publicly traded conglomerates, errors and omissions insurance (also known as E&O insurance) can help your business in times of need.

It protects your business if its services result in a lawsuit, or if you failed to provide those services in the first place.

But it does so much more than that, and it spans nearly every industry you can imagine. From personal fitness experts to large advertising agencies and from insurance brokers to website hosting companies, here’s what you need to know about errors and omissions insurance.
 
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What Is Errors and Omissions (E&O) Insurance?

Errors and omissions insurance is a policy that is tailored toward businesses and individuals that provide services. If a client of that business or individual has a less-than-stellar experience, or failed to receive the service altogether, they may hold you accountable by suing.

If they do, errors and omissions insurance may help defend you or your company by providing financial relief from lawsuits.

What Does Errors and Omissions Insurance Cover?

Many E&O insurance policies help to cover court settlements, judgments against you or your company relating to the incident at hand, and other court costs associated with the claim.

It can cover things like negligence, misrepresentation and violation of good faith. It’s extremely valuable to the financial wellbeing of service-centric companies.

Let’s say you run a successful advertising agency or accounting firm. If a client sues you for a service that ruffled feathers among the general population, or that they feel slighted their business in any way, they may turn around and sue your company for damages.

Now, even if the claim is unfounded and the court of law proves your company did not cause financial loss for the provided services, there are still court costs and lawyer fees to pay.

Do you really want that money to come out of the profitability of your business and have an effect on the bottom line? Nope, I didn’t think so.

Errors and omissions insurance would then step in and pick up court costs and lawyer fees up to your policy maximum, which could save your business lots of money.

On the other hand, let’s say your client’s claims prove to be valid and the court assesses your company to pay damages to the client. Now this mistake could result in nearly any amount of money, from a few thousand dollars to a few million dollars.

We’re guessing your company really doesn’t want to come out of pocket for that lump sum. That’s why you need errors and omissions insurance. Again, it will help to cover court costs and lawyer fees, but this time it will also help to cover judgment or settlement costs associated with the lawsuit.
 
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Who Needs Errors and Omissions Insurance?

If you run a company that provides a service, there’s a good chance errors and omissions insurance could help you in times of need.

Some examples of companies that could strongly benefit from E&O insurance are wedding planners, web developers, marketing and advertising agencies, fitness trainers, and so many more.

In all of those professions, you’re dealing with specific clients that expect specific results. If your company fails to provide those services, or provides services that don’t meet expectations, they can sue you for various reasons.

Although errors and omissions insurance is relegated to certain professions, there are two main equivalents out there in the professional world: malpractice insurance and professional liability insurance.

You’ve probably heard the term malpractice from lawsuits involving doctors of all sorts, but it’s basically the same as E&O insurance with a different name.

That statement rings true with professional liability insurance, which is geared toward professions like accounting, architecture and niches like that.
 
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Errors and Omissions Insurance Cost

The cost of errors and omissions insurance depends on the size and scope of your business. On average, E&O insurance may cost anywhere from $500 to $10,000 per year.

Large-scale advertising companies that deal with a company’s entire brand image are going to pay a whole lot more than an owner-operated, two-person wedding planning company.

The rule of thumb is that if your business’ services have the ability to cause a long-term negative impact for another company, you can expect to pay top dollar for E&O insurance.

If you’re a smaller company that offers services that don’t have an immediate impact on your client’s brand image, you can expect to pay toward the lower end of the spectrum.
 
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Errors and Omissions Claims Examples

While there are basically an unlimited amount of examples pertaining to errors and omissions claims, the following instances are just a few common claims business owners can run into when they need E&O insurance.

1. Advertising Firm Runs Publicly Criticized Campaign

Let’s say a client just choose your advertising company to create its next new campaign. Your employers spend months narrowing down the messaging and finally figure out the perfect details for the national or local campaigns.

Launch day is here and the campaign goes live, seen by millions around the world (or just a few hundred around town). The public is appalled, taking to social media to rip that company’s messaging, causing millions of dollars or just a few hundred dollars in lost income. Does that fall on the company that is advertising or the company that created those campaigns?

If you said the company that created the campaigns, you’d be spot on. No matter how small or large the audience you’re targeting, a negative brand image is still the same.

In either instance, that company will likely sue you for damages, and you’ll want E&O insurance on your side if they do.

2. Wedding Planner Fails to Provide Service

A client comes in seeking the perfect wedding, as every bride and groom do when they decide to tie the knot. As a wedding planner, you agree on the venue, band, catering services and every other tiny detail that goes into this big occasion.

The wedding day arrives and the catering company falters, losing half its staff to an unforeseen incident and throwing the wedding into a starved state of disruption.

Sure, you can blame the catering company you hired. But at the end of the day, your company planned the wedding and ironed out the details, failing to live up to expectations.

While the bride, groom and guests may look back in a few years and laugh, they’re certainly not laughing now. And they may wind up suing you for ruining their big day.

Whether you run a wedding planner company of one or a few hundred, you’ll want errors and omissions insurance to stick up for you, and pick up the costs associated with the lawsuit.

E&O Insurance for Your Business

If your business provides services directly to clients, you will be held accountable for those services and the results that follow. Although businesses aren’t out there striving to harm their client’s reputation, it happens — and it’s costly when it does.

If your business can’t handle the financial setbacks of a client-filed lawsuit or you just don’t want to run the risk, errors and omissions insurance is the perfect fit.

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