Errors and Omissions Insurance: What it is & Why it Matters?

As a business offering clients professional advice, you know that there’s no room for error. You evaluate each project or person’s case and apply for professional skillset in order to provide them with the best advice possible. This means that while each job brings a new challenge, it also holds the possibility of making a mistake.  Errors and Omissions Insurance is a form of Business Liability Insurance that protects companies or individuals offering advisory or consulting services. Discover more about this specialised form of Liability Insurance, including who needs it and what sort of business risk it covers. 

What is Errors and Omissions Insurance?

Errors and Omissions covers any professional services provider offering clients advice in exchange for a fee, like accounting services, financial or legal advice. It protects your professional reputation and your business stability against the cost or payout of a lawsuit, any legal defence required and any settlement or judgment outcomes. E&O Insurance covers claims concerning allegations of inadequate, negligent, inaccurate or incomplete advice that leads to a client experiencing losses or damage. 

Difference between Errors and Omissions & Professional Indemnity Insurance

You may be wondering how Professional Indemnity Insurance differs from Errors and Omissions coverage. The main difference between the two is different terminologies and industry applications. 

Who needs Errors and Omissions Insurance?

E&O Insurance covers a range of vocations and industries that offer educated or skilled advice in exchange for a fee. This includes traditional roles like tax advisors, auditors, engineers, and other areas of operation. For example, IT professionals and real estate agents are in the business of advising clients on decisions that can be worth hundreds of thousands of rands and could benefit from this — as could project managers and event planners.

What Errors and Omissions Insurance covers

In most cases, E&O Insurance will cover the legal defence costs and any resulting settlements, compensation or judgements you're required to pay should your business be found liable. While your coverage will depend on the nature of services you offer, here are some other specific incidences of how Errors and Omissions Insurance can protect you against:

• Cyber liability and data breach or infringement claims — Businesses can be vulnerable to litigation over a client's losses and damages resulting from criminals accessing their private information. This can involve criminals accessing your business's network and client information stored on it for use in financial fraud or identity theft. It can also involve competitors accessing trademarked or copyright-protected information.

• Professional negligence — This covers you if it's determined that you failed to exercise reasonable care and diligence when advising a client, considering what's typically expected from someone with your expertise or skills. It can also cover you if you took on a mandate without having the skills or experience to manage it or made a reasonable professional error in judgement. 

Practical examples of Omissions and Errors in business

Take a look at these two examples:

1. Leslie is an estate agent and is approached by someone wanting to sell a family farmhouse that's been uninhabited for years. A couple buy the home and realise that it isn't connected to a municipal water supply, forcing them to buy water for drinking and cooking. The new owners open a formal legal case against the estate agent for failing to disclose this — requesting they cover the cost of connecting the property to the system. Leslie will be deemed responsible for this cost if she is found to have been negligent by not ascertaining this information from the original owners. 

2. Manny is an event planner and plans a cartoon character-themed party for a celebrity's child. The party is profiled by the media, where the cartoon character's creators see it and sue Manny for failing to secure permission to use their copyright branding. As the celebrity client had given Manny a budget and allowed him to select the theme, the celebrity and cartoon character both make claims against Manny — the celebrity for the resulting negative publicity that lost her a contract and the creators for the fee they'd typically charge for using their branding in a high-profile setting. Manny could be found liable for both counts as he failed to undertake appropriate due diligence in conducting proper checks and research about the copyright. 

How much E&O Insurance do you need? 

The level of coverage you get (and the value of claims you're covered for) will depend on the following factors:

• Your risk factors — This will consider whether or not your industry is high risk or you've faced similar claims before. 

• Coverage limits — The average payouts businesses make in similar cases.

• Business type — If you deal with large clients and high-value projects, you'll require correspondingly high coverage. 

• Terms and conditions — You may need to pay deductibles and premiums to access full claim coverage. Insurers can also exclude specific claims or have an annual claims limit. 

Get an Errors and Omissions Insurance quote from 1st for Women 

Now that you have a better idea of how this type of insurance can benefit your business, you'll want to find out what you need to do to get covered. 1st for Women can assist you with this and answer any other questions you have concerning business insurance. Get an Errors and Omissions Insurance quote today.