Risk & Business Magazine Knight Archer Insurance Magazine Fall 2017 | Page 6

GOOD NEWS, BAD NEWS
It’s A “Good News, Bad
News” Situation
E&O policies
are designed to
cover the large
legal defence
costs that are
incurred trying to
prove liability or
innocence. They
also ultimately
cover the final
judgment if the
business owner
does not win the
lawsuit.
T
he bad news: Lawsuits, once
a measure of last resort, are
now commonplace in settling
disputes.
The good news? You can
protect yourself, your business and your
business’ reputation by investing in
professional liability coverage, also known
as errors and omissions (E&O) insurance.
E&O insurance is supplementary liability
insurance that enhances any business
owner’s policy by safeguarding against
catastrophic loss in the event of a lawsuit
due to a negligent act, error or omission by
the professional. In addition to claims of
error, omission, or negligence, it can also
protect against slander, libel and breach of
contract.
WHO NEEDS E&O COVERAGE?
Anyone who provides advice, makes
educated recommendations, designs
solutions or represents the needs of others.
Service professionals, such as accountants,
business consultants, software developers,
planners, architects, real estate agents, land
and real estate developers and contractors,
are prime candidates for carrying E&O
insurance.
E&O POLICY OVERVIEW
E&O coverage supplements a General
Liability policy commonly purchased by
businesses. A general liability responds to
allegations of “property damage” or bodily
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“injury”. It does not cover allegations
of pure financial loss. Even in a general
liability policy there likely is an exclusion
for bodily injury or property damage
in the rendering or failure to render
“professional services”. As examples, your
commercial general liability policy does
not provide coverage for service errors,
contract performance disputes or any other
professional liability issues.
An Error and Omissions policy will also
cover defence costs, which can be quite
substantial even if liability is not found.
E&O policies generally have both a claim
limit and an annual limit, which is based
on the insured’s exposure. The claim limit
is the maximum amount that will be paid
for any single event, and the annual limit is
the maximum that will be paid in any one
year for all claims. Typical limits purchased
are $1 or $2 million and can be increased to
substantially higher amounts as required.
COUNT ON THE EXPERTS
There are many different forms of
professional liability insurance and
multiple factors to consider when
purchasing E&O coverage for your business.
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