Errors and Omissions or Professional Liability Insurance: Does Your Small Business Need It?
Published on April 11, 2018
Do you need errors and omissions or professional liability insurance to protect yourself when you engage in your profession? These terms are used interchangeably in different professions to refer to a type of insurance that protects against financial ruin from lawsuits filed by clients and customers.
The Insurance Information Institute says errors and omissions may be used more often in cases of negligence on the companies’ part, but in many cases, the terms professional liability insurance is understood as being the same basic form of coverage as errors and omissions.
Is professional liability insurance the same as other types of liability insurance policies?
You may have also heard of general liability insurance—which is common among small business and all businesses alike. According to the Insurance Information Institute, anybody who gives professional advice that could result in a client’s losses should understand that their general liability insurance policy won’t cover these kinds of damages. General liability covers claims like bodily injury or property damages that result directly from your business activities.
To understand the difference between professional and general liability insurance, consider these simple examples:
- If a customer trips on a wet floor inside your business, your general liability insurance policy would protect you.
- If your client claims that your professional advice mislead them into making a bad investment, you would need professional liability insurance.
Typically, a business owners policy, called a BOP, or an in-home business policy will only include general liability and not professional liability protection. Some professionals may have the option to include an endorsement for errors and omissions in their commercial package policy, or CPP. If you’re not certain if your current package of business insurance includes errors and omissions, you probably don’t have it, check with your insurance agent to make certain.
Some examples of the kinds of claims covered by professional liability insurance and not by general liability insurance include:
- Misrepresentation and violation of good faith
- Inaccurate advice and negligence
Why are there so many names for one type of insurance?
Professional liability insurance, errors and omissions, malpractice insurance…why so many names for the same type of coverage? Part of the reason that there are so many names commonly used for the same insurance policy is that different industries commonly use different names for this insurance.
For instance, doctors usually need malpractice insurance, which is just another name for medical errors and omissions policies. In many cases, state laws require both doctors and lawyers to have this kind of coverage. Other professionals who may need this type of insurance include all sorts of financial advisors and insurance agents, professionals in building trades, and even IT consultants.
You may hear errors and omission commonly used in real estate, accounting, and tech firms, while architects and engineers may be more likely to say professional liability insurance. Just make sure you know the different terms, so no matter whom you’re talking with, you understand the coverage be referred to.
How errors and omissions insurance protects you
You can choose from two kinds of coverage:
- Claims made: In this case, you need to have your policy in force when the action occurred and when the lawsuit was filed to enjoy protection.
- Occurrence: Occurrence coverage usually costs more, but it will protect you even if the lawsuit occurs after your coverage has lapsed as long as the action happened when you were covered.
Generally, these policies have deductibles that range from $1,000 up to $25,000. You can work with an insurance professional to determine the maximum benefits that you should select to protect your small business.
Take the next step to protect your small business
If you’re expected to have exceptional technical knowledge in your profession and your advice or actions carry any sort of risk to your patients, clients, or customers, you might explore errors and omissions insurance to help defend you against claims and pay settlements or judgments. You should not assume that the professions listed above are the only ones who need protection for professional activities. It’s a good idea to speak with a commercial insurance agent about risks to your own profession.
You can also learn more about general liability insurance for small businesses here on eHealth. If you’re in the market for any sort of group or individual health insurance plans, you can also start your search for that coverage with eHealth.