Errors and Omissions (E&O) is sometimes referred to as Professional Liability. It provides coverage against claims of negligence or mistakes that cause financial harm to another person or company. It covers both the obligation to pay damages for overed claims as well as the cost to defend against such claims. Most people are familiar with the term Malpractice Insurance used in the medical and legal industries. E&O or Professional Liability protection is for those that are not in those specific fields.
E&O covers you when you are accused of not having done your job correctly. Renovating a house? A small error in your measurements could cost your customer a lot of money farther down the line if your mismeasuring causes damage. Running an in-home daycare? It would be very easy to overlook a child’s speech impediment, which could later become a lawsuit for negligence. That’s where your Professional Liability insurance policy comes in.
E&O is appropriate coverage for anyone who gives advice, makes educated recommendations, designs solutions, or represents the needs of others. Service professionals, such as accountants, computer consultants, software developers, planners, architects, real estate agents, contractors are prime candidates for carrying E&O insurance. Again, coverage is written on a claims-made form with a shared limit for defense and judgement.
How is Premium Determined?
- Scope and Nature of Work: E&O premium starts with understanding the scope and nature of work. The more potential damage your services can cause, the more you can expect to pay.
- Experience: If you have only been in business for a year, your professional liability premium may be higher than a similar individual with fifteen years of experience. Underwriters operate under the assumption that the less experience you have the more risk you present.
- Financials: If your business has been established for several years with a strong financial stability your E&O premium may be lower.
- Types of clients: if those you serve stand to lose a lot if something goes awry, your insurance premium will reflect these higher stakes.
- Policy Limits and Retentions chosen
- Breadth of policy features: similar to Directors & Officers Liability Insurance (D&O) and Employment Practices Liability Insurance (EPLI), there are no standard policies.
- Claims History
Mitigate Your Professional Risk
Claims arise from many areas:
- Errors and Omissions
- Violation of Good Faith
- Inaccurate Advice, Guidance or Counsel
Many times, claims result from poor communication, clerical errors, and failure to disclose information. There are steps you can take to mitigate your professional risk in many industries:
- Always have an executed contract
- Leave a trail of paper that documents all communications, including verbal communications like meetings and phone calls
- Be transparent; keep clients up to date on progress, pitfalls and avoid surprises
Economic Inflation/escalating claims costs result in further underwriting scrutiny. Recent claims activity and rising settlement and judgements have resulted in changing terms, decreased limits, and increased retentions at renewal.
COVID-19 and Remote Working – High turnover continues to be an issue. There is an ongoing concern on how professional firms are addressing deadlines and the continuity and quality of services performed. Expect additional questions about independent contractors and new employee orientation and training.
It’s important to note that E&O coverage doesn’t ensure that you are good at your job. If you are holding yourself out there as an expert, it is expected that you have the credentials to be that expert. As we have previously stated, every policy offers coverage and then takes it away in exclusions. Common exclusions in an E&O policy are:
- Bodily injury and property damage – these coverages are instead provided under general liability policies. Remember E&O is for resulting financial losses.
- Coverages found elsewhere – workers’ compensation, harassment, discrimination etc. that are covered under other policies
- Dishonest, criminal, fraudulent or malicious acts
- Bankruptcy or insolvency of any party
- Liability of others assumed under contract
- Warranties or Guarantees
The average verdict severity climbed by 50% over the past three years. Many of these cases center on contractual disputes with the client or owner, based on performance issues and negligence, or fraud allegations, often on the part of the clients. Also, renewal pricing on average is up about 12%; some industries are higher, some are lower.
The professionals at Sentinel stand ready to assist on a myriad of Errors and Omissions risks. Not sure if you are exposed? Contact us today to learn more about Safeguarding Your Success.