It happens. People make mistakes. For an accountant, architect, attorney or other professional, an allegation of error can lead to serious legal problems. Most small firms or agencies don’t have the resources to handle a prolonged court case, much less the cost of a huge settlement. That’s why it’s so important to have the right errors and omissions insurance (E&O) in place.
What Does E&O Insurance Cover?
E&O insurance covers legal costs and damages when a client sues you for failing to deliver your product or for making a mistake. Even if you do your job perfectly and don’t make mistakes, a client could still sue you and you’d have to deal with the costs of going to court.
With E&O insurance, you’re protected. Your E&O insurance would help pay for your attorney and other legal fees. If you eventually lose your court case, the E&O insurance would cover the settlement up to the policy limit. Considering the amount of lawsuits that happen in America, businesses that don’t invest in E&O insurance are taking on a huge risk.
Applying for E&O Insurance
When you apply for E&O insurance, the insurance carrier will review your risk for a lawsuit. The underwriter will look at your business model and consider your past work to get an idea how likely you are to run into legal problems. The higher your risk of a lawsuit, the more you’ll need to pay for your policy.
E&O policies don’t have standardized terms, so you’ll need to closely read a policy offer before signing up. Make sure that it offers enough of a limit for legal costs and also see if it excludes anything. For example, many policies exclude punitive damages. You may also find your contract doesn’t kick in for a few months; sort of a waiting period until you are protected. To make sure your contract terms are fair, you need to work with a qualified firm that responsibly provides this coverage.
Don’t leave your business exposed to a lawsuit. With E&O insurance, you can rest easy that you have the right protection in place. Have you ever considered your potential legal liability as a professional? What steps do you take to reduce your risk?
