E&O Insurance: Everything You Need To Know And More

TLTR: This article has everything you need to know about E&O Insurance, from which coverage to get to how to make your claim. 

Have you ever made a typo? It sounds like an absurd question – who hasn’t made a typo? As humans, we constantly make tiny errors in our day-to-day lives. We spill drinks, we misplace receipts, and we make lots of typos. In the corporate world, however, it’s often the tiniest errors that amount to the largest losses.

Therefore, any company that hires out work, whether it’s 200 people or just 2, needs a good E&O insurance plan. E&O simply stands for errors and omissions. This insurance type protects employees of a company from lawsuits made against various mistakes.

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But, what exactly does E&O insurance cover?

E&O insurance helps protect your business from claims of:

    • Negligence, or the failure to give the standard level of care expected from your position, particularly when it leads to a loss either for the company or the customer.
    • Errors in services given, such as an incorrect order dispatched for delivery, or an incorrect food order at a restaurant that isn’t fixed on the bill.
    • Omissions, or when something important is not disclosed, resulting in a loss for the customer or the company itself.
    • Violation of good faith and fair dealing, the presumption made that all parties in a contract will deal with honesty and fair intentions.
    • Inaccurate advice, similar to misrepresentation, is when an instruction or advice is given that is misleading or untrue.
    • Misrepresentation, which is the offense of given misleading information.

    However, E&O insurance can only help cover a claim if:

      • It’s filed prior to the start date of your policy period.
      • It’s filed within the timeframe of your extended period.
      • The incident occurred on or after the start date.

    Common exclusions for E&O insurance include:

      • Illegal acts and purposeful wrongdoing, if you are found guilty of purposely breaking the law or deceiving your clients or customers.
      • Bodily injury or property damage caused to employees or clients/customers on the premises of your business. You’ll need a general liability insurance policy or a business owners policy for these claims.
      • Employee injuries or illnesses caused by their work. A workers’ compensation insurance policy can give your employees benefits to help them recover from a work-related injury or illness. Be aware that many states require this coverage if you have employees.
      • Discrimination or harassment in the workplace that your employees will file. Getting employment practices liability insurance can help cover these types of claims.

    Common E&O Insurance Claims

    There’s a misconception that only large, public corporations are likely to run into lawsuits. These types of companies receive more media coverage and the lawsuits against them are much higher profile. However, small businesses are also prone to lawsuits, particularly from disgruntled customers. All businesses, small or big, are susceptible to E&O lawsuits.

    Here are some of the most common E&O claims, according to Cody Group:

    Breach of Contract is Covered by E&O Insurance

    Reading any contract, you sign word for word is so important. A breach of contract is the most common E&O allegation. It occurs when you fail to perform any responsibilities under the terms of a written contract. Your client or partner could sue you for any financial loss or mental disturbances that occur due to the breach of contract. This could be as minor as missing a deadline.

    The most important part of the contract drafting process is drafting it and making changes. If you are providing a certain service and you are not clear about the terms and regulations to work by, then you will end up running into E&O claims from unhappy parties. With E&O coverage, however, you can avoid all fees associated with legal costs and settlements.

    Insufficient Communication: E&O Insurance Claim

    Many people tend to be less communicative than they should be. When this quality follows you into a workspace, it can cause serious damage. Poor communication of a certain project or task at work can leave your clients, customers or partners with valid legal claims against you. This type of claim would come under acts of negligence.

    An employee must provide the correct amount of information as well as the correct documentation to supplement it. Failure to do so would legally be an act of omission. Similar to Like negligence, claims against omission often root from poor communication skills and not from any malice or intention to deceive.

    To avoid these two claims, companies can maintain strong management practices, employee performance evaluations, documentations of important conversations and also a clear line of reporting. If you are still slapped with a claim despite having all of these systems in place, then an E&O insurance plan is the only route to avoiding unnecessary losses.

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    Intentional Misrepresentation is Covered by E&O Insurance

    Sometimes, failure to disclose information can go beyond an omission claim. If fail to disclose information that causes financial or reputational loss to your partners, clients or customers, then you can face a lawsuit for intentional misrepresentation. Claims that overstate their expertise and act like they are capable of more than they actually follow through with are often hit with these claims.

    Even if it wasn’t your intention to be misleading, a plaintiff will have to prove in court that there is no evidence working against you. If there is evidence that can prove you were intentionally misleading, then you will ultimately lose the case. For this reason, E&O insurance is important, both for court fees, to hire the best lawyers and to cover your potential losses.

    E&O Insurance for Software Failure

    Software can be glitchy and when it malfunctions, it is often the responsibility of the software developer. However, when software systems cause financial damage to partners, clients or customers, your company will be liable for any charges.

    Tech companies are also often held liable when their software malfunctions. When claims against a company are made for faulty software, the tech company that sold the software will end up with the largest lawsuit. For example, if employees are underpaid due to a software glitch, then they have grounds to sue their management, who then can sue the company they bought the malfunctioned software from. Therefore, E&O insurance is a must for tech companies. This works best when combined with cyber insurance.

    How Much Does E&O Insurance Cost?

    According to The Hartford, average costs for E&O coverage are usually $500 to $1,000 per employee, per year. That means if you have a medium sized business with 100 employees, you can estimate your E&O insurance costs to be between $50,000 and $100,000 per year.

    This is only an estimate. There are other factors that will ultimately determine your final costs. These factors include:

      • Company size
      • Industry
      • Risk appetite
      • Financial position
      • Revenue
      • Claims history
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    What Are The Steps to Making an E&O Insurance Claim?

    If your insurance policy is in place and active, then you can begin to make a claim with these following steps, found on Insureon:

    1. Review your E&O policy.

    You need to make sure your policy covers the allegations made against you. Review your policy yourself before contacting anyone else. This will save your time.

    2. Make the claim right away.

    Start the process as soon as you know it is covered. You’ll need to file a claim on your E&O insurance policy. Write down every detail about the claim that you can remember while it is still fresh.

    Other information that our insurance provider will need to know includes:

      • Your name
      • Business name
      • Current contact information
      • Policy number and type of coverage
      • A description of the claim
      • When you first learned about the incident

    It’s important to be as fast as you can when filing a claim. If you fail to report an incident as soon as you learn of it, then the terms of your E&O coverage will be affected.

    3. Contact your insurance agent.

    The next thing you need to do is call your insurance agent.  If you haven’t been sued just yet, then the agent will recommend that you call your insurance carrier and they can take case of the rest.

    Early action allows the insurance company to investigate and resolve a claim prior to the lawsuit, as part of your insurance coverage. Many E&O policies, along with paying for your defense, also help you find a lawyer and pay off your losses. However, if you do not notify your insurance company within the given timeframe, they can easily also reject your claim.

    4. Gather all documents related to the incident.

    Evidence is a must-have for a successful legal defense. Make sure you have as many documents and records as possible of all of your professional activities and interactions. Good examples of records and documents you can easily record and file:

      • Phone calls
      • Emails
      • Instant messages
      • Video conferences
      • Contracts

    No one other than your attorney should have access to these documents. Make sure you keep private copies that only you can access. Never alter any document, even for a misprint or to add a clarifying mark, as alteration of evidence is against the law. This looks bad in court. Additionally, it could lead to you losing your E&O insurance coverage.

    5. Contact Your Lawyer.

    The next step is to make sure you don’t take any steps without contacting your lawyer. Stay calm and follow their instructions. Once your lawyer looks over you formal complaint, they might take any of the following courses of action:

      • They may dismiss your lawsuit on legal grounds, if the claim in unfounded.
      • Thay might answer the claim in court.
      • They could also settle the claim outside of court.

    There have been many cases where people drop an entire lawsuit gets when they get a simple apology or a promise. In most cases, however, you should be able to settle outside of court with a negotiated amount of money, which your E&O insurance will cover.

    Important Tips: Limit your interactions

      • Do not speak unless you are required to.
      • Never say you are sorry.
      • Never make decisions without discussing it with your lawyer first.
      • Be honest.

    Professional Liability vs. E&O vs. Malpractice Insurance

    If you own a business and have looked into insurance, you may wonder what the difference between these three terms are. The terms “E&O insurance” and “professional liability insurance” seem to be used almost interchangeably and provide almost identical coverages. You may also hear of similar insurance coverages under “malpractice insurance.”

    These terms can be broken down by industry:

    Ultimately, they all mean almost the same thing. They are insurance policies people put in place for when business professionals make mistakes at work.

    In conclusion,

    We all make mistakes. E&O insurance gives you the flexibility to forgive the plethora of mistakes that your employees are bound to make. At a cost price that suits your budget, any mistake large or small can be forgiven.

    Have we convinced you into getting D&O insurance for your company? Find an agent in our insurance directory and find out the best rates for the coverage you need.

    Did you find our blog helpful? Feel free to let us know your thoughts or ask any questions in the comments below.

    Frequently Asked Questions 

    How is D&O insurance different from E&O insurance?

    D&O insurance stands for directors and officers’ insurance and E&O insurance, on the other hand, stands for errors and omissions insurance. Both are necessary for companies to have, but for different reasons. D&O protects directors, shareholders and high-level officers, while E&O protects employees from errors.

    Why is E&O insurance so expensive?

    According to The Cost Guys, E&O insurance differs greatly on the industry you’re working in. Here’s a quick data table they’re provided with some average cost examples.

    Industry Average Yearly Cost of E&O Insurance Average Monthly Cost of E&O Insurance
    Building Design $1,704 $142
    Media & Advertising $845 $70
    IT/Tech $730 $61
    Real Estate $665 $55
    Consulting $650 $54
    Insurance $550 $46
    Finance & Accounting $400 $33
    Medical/Health $7,400 $617
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