Do I need errors and omissions insurance?

Business insurance: it’s bit of a minefield isn’t it? 

You know you need it, but just what, exactly do you need and how do you figure it all out?

If you’re looking for coverage, you may come across technical terms like: ‘liability’, ‘duty of care’, ‘claims made’ and ‘negligence’.

We’re happy to shed light on these if you give us a call (as will any broker that knows their onions).

‘Never mind that’, I hear you say, ‘what if I know absolutely nothing at all to start with?’

Not a problem. Just sit back, relax, and – if it helps – try to think of our knowledge as the water to your sponge.

We’ll start with the basics shall we? Fire away.

Client: OK then InsuranceBee. What exactly is errors and omissions insurance – is that the same as professional liability insurance?

iBee: Yes it is – top marks. And it’s a good question, by the way. The short answer is that it’s all about negligence and protection.

Client: Right, but what does that mean then?

iBee: Well, when it comes to both those things, it’s your negligence and your protection we’re talking about.

Client: That sounds a bit dramatic. Me? Negligent?

iBee: In simple terms, in business, your negligence can be thought of as a mistake you’ve made. Mistakes usually have some kind of fallout (for example, an unhappy client) and that’s where the protection-for-you bit comes in.

We’ll take you as an example. You’re a professional and you give your clients specialist advice. Right?

Client: Right.

iBee: Well, if your client believes you’ve done something wrong, like given them bad advice, not delivered what you said you would or been careless with their confidential information, they’re at liberty to sue you for any losses they sustain because of the alleged failure.

Client: I’m listening…

iBee: If they do decide to sue you, it’s then that an errors and omissions insurance policy kicks in. The legal costs of defending you and any damages awarded to your client are paid – up to the level of cover provided by your policy, of course.

You get the problem resolved and, with any luck, get to keep your client too.

Client: OK, great. I can do whatever I want from now on then, safe in the knowledge that I’m protected.

iBee: Hmm, not quite. E&O is for genuine mistakes. Insurers tend to draw the line at paying claims caused by recklessness or promising something you can’t deliver. You still have to act responsibly.

Client: I’ve got pretty robust terms and conditions and I only work when there’s a written contract in place. I don’t need insurance on top of that as well do I?

iBee: I’m afraid that you do – a sign of the times. These days, customers are inclined to sue first and ask questions later – you don’t actually need to do anything wrong to find yourself at the sharp end of some enthusiastic finger-pointing.

And just one accusation may be enough by the way. You’ll need to defend yourself if it happens and that’s both expensive and time-consuming.

Client: But not if I have E&O insurance…

iBee: Exactly. Go to the top of the class.