When you're considering E&O insurance, it's easy to focus on the errors that could cause client problems. Even simple issues such as taking down incorrect address information could mean that a client receives mail too late or not at all. Your agency tries diligently to correct errors and to create processes that help you avoid errors in the first place. However, in focusing only on errors, you could make another one: forgetting about the problem of omission.
What Is an Omission in E&O Insurance?
According to the Insurance Journal, E&O insurance covers you "in the event that a client holds you responsible for a service you provided, or failed to provide, that did not have the expected or promised results." You could make mistakes in business, but one of your biggest mistakes could be failing to mention something or complete a task. This is called an omission, and it's defined by what you don't do, rather than what you do incorrectly. An omission could impact your client. For instance:
You could fail to mention what is not covered by an insurance policy.
You could fail to mention other insurance options that you offer that might better suit your client.
You forget to ask for key information for a client's insurance application.
Any time you do not do something or mention something important to a client, you have made an omission. Your client may also perceive you to have omitted important information and could sue you for this perceived omission as well. For instance, if you don't mention all of the potential insurance options on a form and one of the ones that you omitted would be a better choice for your client, that client could state that you should have mentioned them.
None of this is necessarily done with ill intent. You could simply forget. However, that forgetfulness could lead to clients who choose a policy that doesn't provide the coverage that they need, thereby leading to problems in the future. Their problems become yours if that perceived or actual omission leads to a lawsuit. Even if you win, you will still need funds to pay for legal fees along the way.
What Does Your Insurance Cover?
Errors and omissions insurance covers many expenses that can occur if you experience a lawsuit due to a real or perceived error or omission. These expenses could include:
Court costs to file documents
Administrative costs to move documents
Settlements if you settle out of court
Judgments if you go to trial and lose
Every E&O policy is different and will depend on the needs of your business and what the E&O provider offers. For example, each policy may have a different liability limit and deductible level and may cover or not cover risks such as cyber liability or punitive damages.
The cost of your insurance will vary as well and will depend on:
Your business size and scope
The time you've been in business and how many claims you've made
How you do business (What are your risk management procedures?)
Your employees and their credentials
How much coverage you want
- How large or small of a deductible works for your business
Make sure that you know exactly what is covered before you purchase your E&O insurance.